What does 2019 have in store for financial markets?

As we draw to a close on another interesting twelve months for global economies, it would be fair to say that we would all like to see some level of stability returning to the markets.

From Brexit to the US/China trade wars, a combination of these political developments alongside pressure from rising interest rates and a stronger than expected tightening by the Fed, has caused almost all markets, both stocks and bonds, to fall in value.

And whilst it is inevitable that further political and economic factors will continue to make the headlines in 2019, experts are hinting at signs of a potentially more positive year ahead.

One of the key driving factors is the predicted slowing in growth of the US economy, which should drop back to a more sustainable 2%. A drop in growth rate is likely to cause the dollar to lose some ground against other currencies, which is good news for emerging stock and bond markets, which have suffered particularly badly in 2018.

While some concerns had been raised about a possible recession in 2019 as we enter a tenth consecutive year of expansion following the global financial crisis, many of the forces that led to a strong year in the US during the past year are still in play, which is leading experts to think that a slowdown, rather than a recession is the theme for next year.

At Vanguard, the view is that with slowing growth, disparate rates of inflation and continued policy normalisation, periodic bouts of volatility in equity and fixed income are likely to persist. Bond managers at Schroders are a little more cautious, as central banks, who have been keen buyers of government and other bonds, pull back from doing so.

As mentioned in previous articles, a volatile climate is calling for investors to adopt a more long-term, diverse and risk-adjusted approach to their portfolios so as to bring their expectations more in line with the likely outcomes. Experts predict that UK fixed income returns are likely to be 1%-2.5% annualised; global fixed income returns around 1%-3% annualised and returns in global equity markets between 3%-5%. Private assets, such as private equity and real estate, as part of a diversified portfolio are predicted to continue to aid investors in achieving their long-term goals.

In addition to a long-term view, keeping an eye on sustainability is also said to be more and more important. If 2019 follows the path we expect it to take, then the next twelve months could provide investors with some positive returns, although they will have to work hard for it, leaning on intelligent asset allocation and security selection to boost low headline market returns.


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