welcome to "street signs." um g i'm joumanna bercetche in with a bang stocks in hong kong close up 2% on the first day of trade in 2018 hitting the highest level in a decade. tax relief for bp. the british oil giant says changes to the u.s. corporate tax rates will boost earnings but warns it will take a one-off 1$1.5 billion hit lufthansa shares fall after the german carrier loses out to iag in its bid to buy nikki.

and south korea offers talks with the north a day after the north korean leader, kim jong-un says he is open to dialogue with seoul, despite telling the u.s. that the nuclear button is always on his desk good morning, everyone it is the first trading day of the year i want to alert your attention we have the final manufacturing pmi numbers for the eurozone they came out at 60.6, in line with the flash this is the strongest pace of expansion in the manufacturing sector since the series began in june 199 7 that's two standard deviations above the long run average extremely strong numbers out of europe bringing in our first guest, i have derek halpenny on the phone

with us. it appears as though europe is off to a great start, in line with the momentum we saw in december i also want to point out that euro currency is up through 1.20, and it appears the currency has lagged this morning. what have you pencilled in for the currency from here >> we think that the euro can gain further, but 2018 will see further strength as you mentioned, last year was a good year. but i think the fundamentals are still consistent with the potential for further advance this year. in particular the markets are focusing on ecb forward guidance and the message from the ecb that, you know, rates can remain where they are until well into 2019 i think the markets are beginning to question the credibility of that forward guidance at some point we will get a tweak from the ecb in relation

to its communications. that's when i think we could see an adjustment in rates and i think that's been anticipated in the foreign exchange markets >> we heard from korea over the weekend, and they said the latest extension will be the last asset purchase extension coming out of the ecb. when have you pencilled in the first hike for the ecb >> i think it's still some way off, but i think if the communication of the ecb, in particular the two important words "well past" in terms of rates remaining on hold until well past the end of quantitative easing. at the end the markets anticipate that being six months so the first rate hike potentially march or into the second quarter of 2019 if there's an adjustment in that, the markets could anticipate something happening

perhaps towards the end of this year i think that's not priced into the markets at the moment. that would be enough to see some adjustment in short-term rates to the upside. >> derek, stay with us i will go over and take a look at how some of the asian equities have done in overnight trading. we'll be right back with you i want to alert everyone to the hang seng. up almost 2% for the first trading day of the year. surging past the 30,000 mark to hit a decade high. hong kong's index was boosted on optimism over h share reform as china unveiled a pilot scheme that will allow main haland companies in hong kong to get h shares as you can see, huge performance out of the gates coming out of asia we had quite strong chinese

manufacturing numbers as well. it is the first trading day of the year let's look at how some indices ended 2017 s&p 500 had a bit of a downer day on the last trading day of the year, overall the picture for the year was up almost 20%, ending at 19.5%. stellar performance for the s&p. not as stellar as the dow. for the year last year, you can see there was a big jump in q4 interesting stat, dow jones almost half of the gains for the year happened in the fourth quarter of 2017. up almost 2,500 points in the last quarter 20% for the year the nasdaq, a lot of attention on tech stocks last year you can see the picture was positive ending up almost 30%, one-year change of 28.2% a lot of the f.a.n.g. stocks

were driving some of the movements with many ofthose stocks up more than 50%. all right. let's look at some of the big names. the major performers in the dow. you can see the number one performing stock last year in the dow jones was boeing up more than 90% on the year caterpillar up 70%, taking advantage of the rebuilding and construction efforts in the u.s. economy. to the down side, ibm and general electric general electric down almost 45%. what were the best sectors of last year? s&p technology sector was the main performing one on the back of some of the f.a.n.g.s per forl m performance. it was a big year for telecoms lots of mergers going on as the sector grappled with the changes coming from the likes of

netflix. you can see s&p telecoms for the year down almost 6%. i should tell you telecoms was the best performing sector in december as a whole. without december this would have been lower telecoms benefited from the corporate tax cut. all right. stoxx 600 switching to europe, a bit of a weaker session on friday the one-year change was up 7.4%. now, that does sound like a good number in the context of how well u.s. equities have done, perhaps a poor performance derek is still with us from mufg just building in on what i was saying about the stoxx 600, we had quite a strong session in europe up 7% last year do you think next year will be a year where we see a stronger relative performance to the u.s. given how much momentum there is in the economic recovery

>> yes, i do i think certainly if you look at the period since ecb shifted to an aggressive easing instance when they cut interest rates for the first time in the middle of 2014 into negative territory, there's been a substantial under-performance of european stock markets relative to the united states. there is potential for catch up taking place in 2018 a lot of good news is priced into the u.s. equity markets we had the tax reform and that's going ahead now. i think a lot of that is priced into the market. when you look at europe, we have had crisis after crisis after crisis since the collapse of lehman's in 2008 i think only in the six months gone past has the investor community started to believe in the potential for sustained growth going forward the flows into equities do show

a pick up in appetite for eurozone activities. i think there's further to go in that >> i want to ask you here, we talked about the currency. we talked about the equities what is the best way to play for the european economic recovery for 2018 which asset class? >> well, you know, we had the big move in fx as i said at the beginning, i think there's further to go in terms of euro gains, perhaps we're not at the undervalued levels from a year ago i'm bullish on the euro but not as bullish as the move last year perhaps in that context, given what i mentioned on equity markets, i think certainly there's potential for that asset class to perhaps outperform the u.s. and then to have a good year >> what level of the currency do you think the ecb starts getting worried? back in october there was a lot of chat about euro/dollar and trading around these levels of

1.20 the question was whether or not the ecb would taper given that the currency had already moved higher we're there now. surely there must be some level where the ecb gets comfortable with the trajectory. >> there is a level. i'm not convinced we're that close to it. as i said, we have come from undervalued levels our estimate of fair value is around 1.25, 1.26. we're still at the undervalued side of fair evaluation. an important speech from ecb executive board member last year, he went into the factors behind the euro appreciation and the message from the ecb appears to be if euro is driven stronger from domestic demand factors, that's less concerning than the euro advancing because of

exogoneous factors so i think the ecb's concern over euro strength will not really show through until, you know, i would say closer to 1.30 are the levels in which the ecb could be concerned >> the currency strengthening for the right reasons is probably a good thing. that was derek halpenny. thank you very much for joining us on the show moving on to another main story, high-ranking officials from north korea and south korea could meet next week this after the south korean unification minister proposed talks. he said they would focus on bringing a delegation from the north to the upcoming winter olympic games in pyeongchang >> translator: the unification ministry and cultural ministry have to prepare a follow-up plan so north and south korea

dialogue can be restored improving interkorean relations cannot be done separately from the north korean nuclear issue so they need to work closely with allied nations and the international community to improve relations and resolve the north korean nuclear issue simultaneously >> this comes after kim jong-un hinted at his country's participation in the event offering an olive branch to the south. speaking in his new year's address, kim made new claims about his ability to reach the u.s. with nuclear weapons. >> reporter: tonight kim jong-un in a rare appearance unleashing an ominous warning the whole of the u.s. mainland is within our firing range and the nuclear button is on my bessing. it's not a threat, he said, but a reality. the president reacting at a new year's eve party >> we'll see

we'll see. >> after a ballistic missile launch in november, kim jong-un claims his nuclear weapons program is complete. experts analyzing the video said it was the most powerful video yet, possibly capable of striking the u.s. east coast north korea still has technical hurdles to cross what is the main message >> the signal that kim jong-un is sending to americans, is checkmate, you have to deal with reality. >> reporter: kim jong-un extended a hand to south korea offering talks, yet no sign that the north is willing to disarm kim jong-un announcing a new goal today, mass producing nuclear warheads and ballistic missiles the country's new year's resolution for 2018.

david roache said president trump's reaction to the north korean threat could lead to a cold war between hin thchina an u.s. >> what is relevant is whether trump accepts north korea being nuclear or if he doesn't and what he does about it. if they accept north korea as being nuclear, we move to containment, so there are missiles throughout the asian region pointing to jong-un then xi loses. if north korea is attacked, unless there is a deal to divide up the peninsula, you're in a cold war situation in both situations, both of these outcomes, you're actually faced with an almost inevitable cold war down the road between china and the u.s.

the first 15 minutes of the show we discussed the strong eurozone pmi numbers looked back at stock indices for next year and discussed north korea. get involved in the conversation feel free to e-mail the show streetsignseurope@cnbc.com and follow us on twitter, streetsignseurope@cnbc coming up, tax boost for bp but not before a short-term hit. more on bp's optimistic take from the tax overhaul in a few moments. (siren wailing) (barry murrey) when you have a really traumatic injury, we have a short amount of time to get our patient to the hospital with good results. we call that the golden hour. evaluating patients remotely is where i think we have a potential to make a difference. (barry murrey) we would save a lot of lives if we could bring the doctor to the patient.

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welcome back to "street signs. it's the first trading day of the year things opened up in a strong way in the asian session overnight with equities knocking it out of the park we're looking at hang seng ending up almost 2%. the picture in europe may not be as rosie as we saw in asian markets. the stoxx 600 opening up a bit weaker, down almost 0.3%

let's look at individual indices. you can see again it's quite a gloomy day for european markets across the board ftse 100 coming off record highs, down 0.3% on the day. dax having a strong down day, almost down 0.7% perhaps on the back of some of the lingering uncertainty of the government processes there let's look at the sekctors and see which are outperforming. oil and gas, up 0.3% one thing i should mention, both crude and brent are up -- are starting the year at higher than $ $60. this is the first time since 2014 that happened do the down side o out toes a s

autos are having a down day, led by volkswagen. back to one of our main stories, shares are higher after sydbank was upgraded vestas to buy from hold and iag agreed to buy austrian airline for nikki. and lufthansa is trading lower after the german carrier was forced to pull out of the race the european commission said a deal could lead to higher prices and less consumer choice and bp says the u.s. tax overhaul will have a positive impact on positive post-tax earnings from the united states, but says the lowering of the

corporate tax rate to 21% will have to devalue tax liabilities. now other companies to reveal the impact of u.s. tax changes include goldman sachs and credit suisse who are forecasting a 5 billion and 2$2.3 billion hit respectively we were talking about oil. supply cuts and strong demand are helping to push crude prices higher brent and wti opened this year above the $60 mark making the strongest start since 2014 gasoline prices are going up in saudi arabia as well. the kingdom signaled a price hike was due in the first quarter but the rise monday came much sooner than most anticipated. the new year also sees the introduction of a 5% v.a.t the country hopes this will reduce the budget deficit as it

attempts to scale back dependence on oil revenues many countries are following suit by introducing v.a.t. one of the main political stories, police stations in iran have been attacked as protests over the clerical leadership continue for a fifth day the iranian president appealed for calm as he appeared on national tv on sunday. 12 people have been reportedly killed as a result of the protests there have been indications of restricted access to the internet for certain areas hallie jackson has more details. >> reporter: tonight, one iranian police officer is dead, three others hurt, according to state media, as government security forces battle with protesters, demonstrations now turning deadlier outrage over skyrocketing prices for food, morphing into broader anti-regime anger for thousands of iranians in the streets nbc's ali arouzi is in tehran. >> authorities here also on the

one hand have acknowledged people's dissatisfaction over the economy, but have also blamed many of the protesters for trying to take this in another direction and issued warnings that demonstrations will be dealt with severely. >> reporter: president trump seeming sympathetic to those protesters, tweeting "today, the great iranian people have been repressed for many years they are hungry for food and for freedom. along with human rights, the wealth of iran is being looted time for change. is that the best course of action for him here? >> probably not. let's face it, america is rather toxic inside iran. it might be more helpful for us to sit back and let this play out. >> reporter: so far, the protests are iran's biggest since the 2009 so-called green movement but that was different more urban, more centered on students and the official u.s. response was different, too. then-president obama preferred a more cautious approach this time president trump appears unafraid to insert himself into the unrest, one

that could end by tomorrow or perhaps stretch for weeks. >> any time you have thousands of people risking their lives against a state that is prepared to use, quote, an iron fist, that's impressive. a very sad story from the weekend. the ceo of compass, richard cousins, was killed when a seaplane carrying him crashed into the sydney river on new year's eve four members of his family and the pilots also died into the crash. an investigation has been opened into the incident. and cousins was praised for his style. dominic blakemore was set to take over from cousins in april but now he will start immediately. as we begin the new year, here's a sampling of global leaders laying out their visions for 2018 in their annual speeches >> we'll have a great year fantastic 2018 off to a very good start as you

know with the great tax cuts, anwar, getting rid of the individual mandate we'll have a tremendous year >> 2018 can be a year of renewed confidence and pride in our country. a year in which we continue to make good progress towards a successful brexit deal and an economy fit for the future and a stronger andfairer society for everyone >> translator: you, my fellow citizens, have charged us politicians with the task of tending to the challenges of the future and in doing so keeping the needs of all our citizens in mind i feel obligated by that directive. also and especially as part of the work to build a new stable government for germany in the new year >> translator: i will continue to work with each one of our european partners, in particular with germany this discussion with our german

friends is the necessary condition for any european progress it doesn't stop us talking with all of our other partners, but it is through which everything begins coming up on the show, it's less than 24 hours until mifid ii regulation comes into force, but is the financial services sector ready we'll have that conversation after the break.

welcome to "street signs." i'm joumanna bercetche these are your headlines in with a bang stocks in hong kong close up 2% on the first day of trade in 2018 hitting the highest level in a decade. european automakers trade lower on weak 2017 car registrations in france as drivers turn their back on diesel lufthansa shares fall after the german carrier loses out to

iag in its bid to buy niki. and south korea offers talks with the north a day after the north korean leader, kim jong-un says he is open to dialogue with seoul, despite telling the u.s. that the nuclear button is always on his desk all right. so it is 9:30. we should be getting the uk pmi data any time now. actually we did just get it. the uk december manufacturing pmi has come in at 56.3 versus 58.2 the consensus number was 58. so it appears as though it's come in a bit weaker versus expectations the overall number has come in lower. so joining us is colin pickering. so this number aside, how do you think uk is poised from a growth

perspective going into 2018? >> i think it should improve a little for 2018. the growth rate for 2017 was 1.6% for 2018, expect 1.8%. less uncertainty now with the progress made on brexit. there should be more normal levels of risk taking, and more stronger growth. >> i was reading yesterday, there was a survey done and they said 58% of firms in the eurozone are feeling optimistic heading into 2018. so lots of optimism in europe but the number for the uk was only 12% about 60% lower than a couple years ago. do you think we should be worried about business sentiment going into the year? >> businesses are correctly worried about a big permanent income shock coming from brexit. that's what will happen. expect the uk to lose some of

its economic vigor in the long run outside of the eu. we're seeing that in 2018. note that my forecast probably above consensus, but without brexit the economy would be growing at 2.5% now rather than 1.8% until firms can say there's a zero probability of a hard brexit, i suspect them to behave cautiously i can see a 20% chance of a hard brexit it's not a risk that should be taken lightly. >> it's interesting that you think the uk economy should be growing by 2.5% with a no brexit ways going on. what does that mean for the market, which is still skeptical. there are not a lot of rate hikes priced in if you look at the front end of the uk curve what are the bank of england's options from here? >> the bank of england will be data dependent

they'll respond on the data and underlying inflationary pressure which will continue to track up. the market associates strong growth with tighter monetary policy and weak growth with easing monetary policy that's not the way inflation works. we're seeing in the uk slower supply growth relative to demand growth i expect the bank of england to hike probably twice this year if supply disappoints they may go more than twice. if demand beats to the upside they may go more than twice. so risk is skewed to the upside. the market is probably underpricing the chance of a rite like by q2. the bank of england will spend most of q1 preparing markets for that rate hike >> so we can't talk about the uk without talking about the brexit discussions. what we know is that in the next couple of months we should get the foundations for transitional deal, but then another six months or so after that to get

the foundation for a full trading arrangement in place what is your base scenario there in terms of what type of trading arrangement the uk will end up with a canada plus plus, a norway minus? what are the implications for the uk economy depending on what type of trading range we end up in >> the key thing to recognize is the contradiction in the divorce terms. forget about transition and trade. the uk promised to preserve the status quo in ireland. that's no hard border, whilst leaving the single market in the customs union. the uk probably has to stay close to the single market to preserve the status quo. the uk has prioritized the s status quo so the uk is drifting towards a soft brexit. i see a 45% chance of a semi-soft brexit, a canada plus

plus deal. 5% chance of no brexit and 20% chance of a hard brexit, i think that adds up to 100. i would say the uk will see the growth rate fall to probably around 1.6%, 1.7% from 2% inside the e ushgeu it's not the end of the world but a terrible economic policy decision >> i find it interesting you have a 70% probability of a semi-soft brexit can theresa may survive if she pushes for that? >> notice how much the brexiteers have moved. it seems the closer david davis gets to the single market the more we realize the uk had a good deal in the first place what will probably happen is by name the uk will leave the eu. the brexiteers can pretend we're on the outside, te chey can tryo

strike a deal, and the uk will benefit, saying they would leave, not left, and then they can trouble the germans and french >> shapes up for an interesting year thanks for joining us. now, it is the first trading day of the year. let's look at markets and see what the picture is like in foreign exchange as you can see, the focus in the morning was the euro/dollar, that's trading up through 1.20, at 1.2053. the big theme for foreign exchange certainly for 2017 and the last couple of trading sessions was the weakness in the u.s. dollar, this despite everything that the fed has done, tightening and some positivity we've seen in the u.s. markets that dollar weakness seems to be continuing for the first day of 2018 switching to european markets, there the picture is also a bit

negative compared to what we saw in asian equities. asian equities had a strong session overnight. the picture in europe is not as strong with all of the four makers trading in the red this morning. one sector that is leading everything to the downside is the auto sector. european carmakers are trading lower after france saw weak car registrations in 2017. now, though more than 2 million new cars were registered, the share of new diesel cars fell below 50% for the first time since 2000 you can see in front of me is a bunch of cars in the auto sector trading down more than 2% this morning. switching to u.s. futures, let's see how the u.s. will look the first trading session of the year s&p, well, pointed to open up about a point higher not as excited as the hang seng index was overnight.

dow jones looking to open up about 42 points higher more positive. that can evolve in the next couple hours. u.s. president donald trump promised that 2018 will be a fantastic year for the united states in his new year's address. he used the speech to praise his party's tax reforms predicting they would support another strong year for american stock markets. tracie potts is in washington what will be at the top of trump's agenda for 2018? >> that may come up, we're told in the first month that republicans want to try to make those tax cuts for individuals permanent. so that could be something that we see quickly in terms of the new agenda welfare reform it's something the president talked about immigration. he wants the money for that border wall, even though he's trying to work out a deal with

democrats on daca, the protection for young immigrants brought into the country illegally as children. that protection runs out in march. we'll see those negotiations as early as this week some lawmakers are headed to the white house this week to talk to staff about that infrastructure republicans see that as a job booster. pouring money into the economy to fix our ailing infrastructure then there's something that couldtop the list, because of the urgency, nuclear threats from iran and north korea. the north korean leader now saying he has missiles that can hit the entire u.s. mainland asked about that, president trump said we'll see but his actions on both of those could involve not only congress, but those national security issues could end up pushing themselves to the top of his agenda >> i want to ask you as well, after the doug jones election, doesn't the majority in the

senate go to one seat? do you think that will derail anything you have discussed in terms of president trump's getting things passed? >> it could make things tougher not only on those things but the budget congress left town without passing a permanent budget they have a new deadline for avoiding a government shutdown of january 19th. that's less than three weeks away the senate comes back tomorrow with not only one but two democrats coming in. one replacing al franken from minnesota. two new democrats, a slightly higher democratic mra j iic maj still no budget making negotiations in the first two and a half weeks critical. one last question. president trump made a lot of waves towards the end of last year when he set out his new national security strategy why did he give that speech at end of 2017 and not wait for the beginning of this year and

perhaps once senate and congress come back from holiday >> good question not clear on why the timing of that speech, but what we do know is that this administration sees the nuclear threat from not only north korea but possibly from iran as something that needs to be acted on quickly. republicans on capitol hill are telling the administration they need to act quickly and decisively to tamp down the nuclear threats. so perhaps that was a precursor of what we could see coming in the next 30 days >> tracie potts, thank you very much now, it's less than 24 hours until mifid ii rules come into effect across europe the legislation is expected to offer greater transparency and protection for investors, but the regulatory overhaul is likely to have unintended consequences >> the spirit of the rules are

good, it's all about transparen transparency, about testing, about clarity, trade reporting but also the rules on research are good in that you're not using client money to pay for that product the idea is that you set aside money in a separate research payment account or take on your own p & l and pay for it that way. the unintended consequences are for mid and small cap companies where there is less research written. if you have to think carefully on what you're paying for, we are likely to see less rising for these smaller companies. >> the costs associated with some of the flows that they go into is huge we're seeing this consolidating of the marketplace if the idea of -- the idea of if you look at the number of individuals that invest in

equities in europe compared to the states, i think we're at about 11% compared to 44%. removing some of these players from the marketplace really will have an adverse effect >> the quality of the surveillance the regulators can do should increase previously it's been a case of knowing firm "a" trades with firm "b. it needed a huge amount of resources. now they'll know who the clients are and they'll link up people trading here and through different brokers and so on to make sense of what's going on in the markets. >> the really great thing, article 59, supplying data back to the clients for us that's been a massive chance to overhaul how we communicate and relay back to the client what they've done with us and to improve platforms. do you have any thoughts on mifid? if you do?

e-mail the show. streetsignseurope@cnbc.com of course you can follow us on twitter, streetsignseurope@cnbc. coming up, a boost for chinese factories as the latest manufacturing numbers show a surge in growth. causing a lack of sharpness, or even trouble with recall. thankfully, the breakthrough in prevagen helps your brain and actually improves memory. the secret is an ingredient originally discovered... in jellyfish. in clinical trials, prevagen has been shown to improve short-term memory. prevagen. the name to remember.

welcome back 2017 was a banner year for etfs with money flowing into etfs and international funds? what can you expect for 2018 >> 2017 was a record breaking year inflows, 476 billion assets under management, 3.4 trillion money pouring into u.s. stocks funds and also international funds. investors have put a lot of money into u.s. fixed income funds. investors took small amounts of money out of high yield funds and mexico funds gold miners saw outflows, despite talk of an infrastructure plan, utilities

and transports had outemployeeor the year the story for 2018 is investors will take money out of mutual funds and put them into lower cost etfs. stock pickers will continue to lose investment dollars. money will come out of active management and into funds tied into indexes like the s&p 500 and money will come out of funds that charge higher fees into funds that charge lower fees, which is why etfs are coming out ahead. it's good news for investors who get broad diversification for lower costs every year. the world will not wait for us that's the message that angela merkel had for germany in her new year's address where there is still not a government coalition. >> translator: you, my fellow citizens, have charged us politicians with the task of

tending to the challenges of the future and in doing so keeping the needs of all our citizens in mind i feel obligated by that directive. also and especially as part of the work to build a new stable government for germany in the new year because the world will not wait for us, we must create conditions now that ensure that germany continues to prosper in 10, 15 years and germany will only prosper if its success serves all people and improves and enriches our lives. germany's southern conservatives are making a push for a corporate tax cut alongside welfare cuts to asylum seekers. the news will complicate talks with the spd the spd called for increased taxes on the wealthy the hang seng surged past the 30,000 point mark to hit a

decade high. the index was boosted on optimism on h share reform mainland companies listed in hong kong can convert nontradable shares into free-floating h-shares you can see the hang seng was up almost 2% in overnight trading. another story from china, the manufacturing sector grew in december hitting a four-month high the market pmi rose to 51.5 beating forecasts. higher prices for raw materials mean input costs continue to rise jonathan fenbi from t.s. lombard joins me on the show so we had strong manufacturing numbers out of china for december i want to talk about the general growth outlook for china going into next year it seems on one hand mr. xi

jinping wants to focus on de-leveraging the financial sector but also keep the economy underpinned. what is your view for this year? >> this is the big question for 2018 for china the balance between a degree of tightening, which i think we'll see, supply side mechanisms to bring down the excess capacity, undoubtedly an environmental push, and the de-leveraging to avoid risks. all that and at the same time the leadership still committed to doubling the living standards between 2010 and 2020 which implies a growth rate of 6.5% this year. which will be a bit below last year but it is still quite high to keep it going. how they can balance those two and where the give and take will be is the big question for this year >> i want to ask about financial conditions in the past couple of months we had a scare in the bond market, corporate bond yields moving

higher and move in the currency. what do you think the financial conditions outlook is going to look like for 2018 are yields going to continue to rise as investors get nervous? >> they probably will rise the authorities are trying -- you have with xi jinping, a great concentration of political power but also risk aversion one thing coming out of the world economic conference, held at the end of last year, the last one in december, was to minimize risks this year you will get the pboc, the central bank, controlling liquidity, trying to tighten but basically not trying to cut off the flow of funds into the market and to companies where earnings have been quite good and companies are able to pay back a certain amount of debt. so you will get this keeping up on liquidity but making money more expensive >> looking back on 2017 and the chinese stock market, it was a great year on the surface. if you drill down deeper, some of the strength was boosted by

tech stocks according to what we saw in the u.s and also by the large caps do you think 2018 will be a year where smaller caps and mid caps tend to benefit from de-leveraging? >> they should do. but you have this big runaway with the tech stocks, as you say. and some of the bigger state companies, they're listed and doing better which is all part of the story of china inc doing well and finding a more stable growth path in that process you will get the smaller and mid cap companies probably fighting for position here this year so i think you'll get winners, but also have a number of losers >> what's the best china play for 2018 >> if you believe in the politics, i think we do now with xi jinping, it's going to be the fallout from the attempt to make, if you like, china a

fairer place, to spread the benefits of growth more widely and give more of the wealth and income creation to the lower earning parts of society, the poor, the middle class and so on to ramp up health, education, pensions so consumer stocks should do well out of that this year we've been saying that for a long time and the chinese still save a lot so they're not spending as much as you would expect them to. if you have the health service, the education service, the pensions going ahead in a serious way, it's just about time for the pilot schemes to turn into real government programs at this point, that could have an effect on freeing up savings and helping consumption. >> another big development for china is the fact that the shanghai index will be included in the meci in june of next year will that be a boone fm for the sector >> will be a boom for the sector

in how they analyze the outlook for china in terms of the individual stocks but also how this fits into the broader chinese growth and planning program. >> sir, i want to ask you one final question xi jinping gave a new year's eve speech where he spelled out a more activist role when it comes to politics on an international scale. why now? why new year's eve why 2018 >> every head of state gives a new year's address they have to say something i think you have to put this into the context of 2017, which is a good and easy year for china. it pushed a lot of doors which donald trump left open on globalization, trade, china trade and so on. now china wants to occupy that position xi is almost positioning himself as the anti-trump in global

terms. but it must be said this has not been fully noticed there's quite a lot of push back from people who say do we really want china to be so important in the world in 2018? that's a big global question the next 12 months >> definitely. that was jonathan fembi. thank you very much for joining us one analyst believes the ongoing crisis with north korea will result in a cold war between china and the united states find out why at cnbc.com. before we head out, let's look at futures for the u.s. and see what the picture is like s&p 500 looking to open about a point higher dow jones about 28 points higher overall slightly more positive day. that's it for today's show "worldwidexcng i ehae"s coming up next.

a new year, a new investment playbook what you should be doing with your money in 2018. president trump returns to washington we'll tell you what is on his agenda. and crisis in iran we'll tell you what lies ated. it's january 2, 2018, "worldwide exchange" begins now good morning i'm wilfred frost. >> i'm courtney reagan in for sara eisen >> happy n