AS WE end the first month of this nascent new year three main themes have emerged that will influence how we shape our clients portfolios over the course of 2018.

The first relates to the fireworks that appear to have gone off in financial markets in the first few weeks of the new year.

There have already been very big moves across nearly all equity markets around the world.

This has been led by some of the winners in 2017, such as the technology sector in the US and markets such as Japan in Asia.

This is interesting not only because few were forecasting that last year’s winners would win again, but also because our views for this year have become somewhat more cautious.

We have begun to take on a more cautious stance because we do not believe it is likely that the gains of 2017 will be repeated in 2018.

This will be particularly true as and when some of the risks mentioned below start to come through.

Despite this, the picture so far at this early stage of the year has been very much more of the same, with markets continuing to do well and investors getting very excited about the year ahead.

The second theme we are focused on relates to the growing threat of inflationary pressures.

We see one of the main risks of the year ahead being the potential return of inflation, which until recently has been an understated concern across global markets.

However, having read through some of the reports coming out of places like the Far East over Christmas, it has become clear that we are starting to see some real supply bottlenecks in certain parts of the global economy.

This is happening at the same time as wages are starting to rise.

In addition, we have to factor in the significant move higher that has occurred in commodity prices over the last few months.

Commodity markets recently set a record for the number of days in which daily gains had been made - this went back all the way through the financial market history that is available to observe.

Taken together, all of these things are pointing towards a higher inflation rate for the global economy in 2018.

However, this is not being properly priced into bond markets and this dynamic could well set the tone as we move forward through the rest of the year.

Finally, volatility in bond markets could also be an issue as the year progresses and as such is proving to be another major talking point at the moment.

Bond markets continue to improperly factor in some of the likely pressures they are going to face later in the year.

These include interest rate rises in the US and a cessation of the policy of quantitative easing across Europe.

It is interesting that we are now starting to see people begin to talk about four Federal Reserve interest rate hikes in the US, which bond markets are simply not expecting.

Bond markets might be expecting two, maybe three hikes, but four would be a surprise and if inflation does start to move higher, as we are expecting moving through 2018, then that could be a major problem for bond markets.

This could easily upset the happy equilibrium that we have seen across financial markets in the last few years, of bond yields being steady or falling and equity markets going up, which could be broken as we move through 2018.

This is a reason why our portfolios might start to become more cautiously positioned as we move through the year ahead.

In summary, we think you can make positive returns this year but you need to make sure that you react to an ever-shifting market environment within your portfolios.

As a guide, our portfolios have gone from a risk-on position at the start of 2016, to a progressively more cautious position as we are now, to potentially outright cautious as we move through 2018.

Tim Wishart is a senior investment director at Psigma Investment Management.