We have already had the longest bull market in history and a very long upswing, so this cycle is clearly nearing its end, but we do not believe the end is imminent – rather the cycle is being redefined and extended by a combination of structural factors leading to low interest rates, low inflation and ongoing moderate growth. The warning signs we monitor that would suggest a sharp turnaround are not all flashing red as we move into 2019.
Our central case is that growth in the US moderates over 2019 as the impact of fiscal stimulus rolls off. Inflation should remain under control and valuations continue to be fair, leaving a broadly benign environment for investors.
We expect global equity markets to make gentle but positive progress, corporate profits to continue growing, companies to behave in an equity-friendly way and valuations to remain supportive.
Within equity markets, we continue to favour capital-light, high-return businesses capable of growing market share and sustaining pricing. As value chains continue to evolve, traditional business models are challenged and technology comes of age, those companies that are able to innovate should continue to grow.
While 2018 was not a great year for bonds, 2019 is set to produce much more attractive outcomes for investors who can navigate highly divergent monetary policy and credit cycles. The high degree of leverage among US companies, compared to European, is a concern, but we believe there are strong opportunities within specific industries and regions. Energy, telecom and food & beverage are industries that have previously increased leverage but now have a number of companies reducing their debt levels.
Emerging market sovereign debt offers a compelling opportunity in 2019 following a sharp rise in yields, but investors need to exercise care as there will be tremendous divergence across the region.
Broadly, we continue to prefer equities over fixed income, but to a less marked extent than in 2018.
However, being attentive to risks is key to successful investing and in 2019 we will keep a close eye on whether the US becomes overstimulated, leading to rising inflation. Trade wars, unforeseen geopolitical events and any further fragmentation of the EU could also impact investment returns. Finally, governments, businesses and individuals are highly indebted – and we must closely monitor any warning signs from this.
Om dit artikel te lezen heeft u een abonnement op Investment Officer nodig. Heeft u nog geen abonnement, klik op "Abonneren" voor de verschillende abonnementsregelingen.
