After the no-holds-barred market rally last year - one that caught many by surprise - it is no wonder that many investors are scratching their heads and wondering what to do for 2018.

Last year, pretty much anything you touched turned to gold, but valuations for some asset classes are no longer cheap so some careful selection is now required.

There are headwinds looming as well, including higher interest rates and potential geopolitical risks.

Financial experts say that despite the challenges, opportunities are there for the taking and stock prices still have legs to run. Here are some investment ideas to consider.

2018 investment outlook

EQUITIES

Mr Ho Song Hui, Fundsupermart's assistant director, research and portfolio management, expects equities to outperform fixed income this year thanks to economic growth and still healthy corporate earnings.

"Asian and emerging markets continue to be the regions where the strongest potential returns can be found, with the Greater China sub-region a key driver," he adds.

"Other markets that investors ought to take a closer look at include the cyclically oriented markets of Singapore and Japan."

Mr Tony Raza, head of multi-asset strategy at UOB Asset Management, favours equities over bonds as global economic expansion remains broad-based. He expects equities to benefit from corporate earnings growth across most regions, while bonds are likely to face headwinds with major central banks increasing interest rates.

He adds that China is expected to drive global demand for commodities such as gold, oil and copper.

"Geographically, we are positive on Asia ex-Japan. Specifically, we favour North Asia, especially China and South Korea, over South-east Asia on cheaper valuations," says Mr Raza.

Mr Sam Phoen, co-founder of Wateram Capital, says the fact that it is the ninth year of the American bull market cannot be ignored.

"As Asia is more fairly valued as compared to the US stocks, a diversified portfolio consisting of US, Singapore and China stocks should act to smooth out volatility and returns, especially since China stocks are less correlated with US stocks than other Asian stocks," he adds.

Mr Vasu Menon, vice-president and senior investment strategist at OCBC Bank, is relatively more positive on the United States and Europe versus Asia and Japan.

He believes the pickup in US corporate capital spending and President Donald Trump's tax reforms could benefit the economy and stock market, although returns are unlikely to be as strong as last year, as equities have already done very well and valuations are rich.

Europe has underperformed the US and could play catch-up as the growth outlook improves. Investment sentiment could also improve as geopolitical risks subside, even more after the Italian elections in the first half of the year.

The stronger euro could be another draw for international investors looking to invest in European equities, adds Mr Menon.

"As for Asia ex-Japan equities, we are sanguine on the long-term outlook but the short-term outlook is murkier with the region's exceptional performance last year," he adds. "Tighter monetary policy from the US Federal Reserve and the risk of protectionism in the US are other headwinds for regional equity markets."

BONDS

Mr Daryl Liew, head of portfolio management at Reyl Singapore, is more keen on equities than bonds due to the likely upward trend in interest rates, and the risk of inflation trending higher than expected.

Mr Menon says emerging-market bonds and high-yield bonds can still offer selective opportunities for those looking for yield. Bonds have enjoyed a good run for the past two years so returns are likely to be more muted. This is especially so as central banks are set to raise rates and there is a risk they may be more aggressive than anticipated if inflation is higher than forecast, he adds.

Fundsupermart's Mr Ho warns that with yields still low and credit spreads remaining tight, investors ought to be wary of stretching too far in their search for yield, particularly for the riskier segments of fixed income like high-yield securities.

"In 2018, I believe that as more major central banks move towards normalisation of monetary policy given that growth rates continue to remain moderate and inflation benign, these banks will abandon their asset purchase programmes and shift towards raising their interest rates away from their historical lows," he adds.

"Investors looking for capital preservation should continue to look at the short-term bond segment, which is likely to be a better place for them to seek capital preservation."

GOLD

DBS holds a neutral weighting on gold, even as it recognises its investment merit as a portfolio diversifier to offset the potential headwinds from a stronger US dollar. This is due to gold being able to benefit from "black swan" events like rising geopolitical tensions that often spark share and bond sell-offs.

But Mr Raza believes gold no longer appears to respond positively to such geopolitical risk.

"As such, it may not be an effective safe-haven hedge. In addition, the expectation of increasing short-term interest rates in the US and globally will likely have a negative impact on gold prices," he says. "As such, we see gold prices dropping from the current US$1,300 an ounce to US$1,200 by the end of 2018."

SINGAPORE DOLLAR (SGD)

Mr Heng Koon How, head of markets strategy, global economics and markets research at UOB, expects the Singdollar to remain strong for the first few months of the year. This is because the market is widely anticipating that the Monetary Authority of Singapore will send the currency on a mild appreciation path at the April 18 meeting, given Singapore's strong economic growth.

However, if the strong export recovery moderates, it may lead to the dollar weakening in the second half of the year.

"Overall, we see USD/SGD staying weak at the current level of 1.33 to 1.34 in the first quarter of 2018, before climbing modestly to 1.38 by the end of 2018," says Mr Heng.

However, Mr Michael Tan, senior portfolio counsellor at OCBC, says the USD/SGD may decline to 1.30 by the end of this year.