Strategy & economics

Monthly market update: April 2019

Markets buoyed by central banks and prospects of a trade deal

23/04/2019

Investment Team

Rebound in markets but economic growth is slowing

We have seen a healthy rebound in equity markets over the first quarter of 2019, with global equities up 10%. Equity market valuations are no longer cheap and are trading in-line with long-term averages. We are seeing signs that global economic growth is slowing and are forecasting a moderation this year to 2.8%, from 3.2% in 2018. However, we do not expect a recession this year or next and there are reasons for cautious optimism. Signs that the US and China are moving closer to a trade deal is positive for risk assets. In addition, the Federal Reserve and European Central Bank have both pulled back from plans to increase interest rates this year. This should provide support to both equity and bond prices.

Undemanding expectations

Slower global growth and trade concerns have resulted in downgrades to earnings growth forecasts for 2019. Companies in the MSCI World index are now expected to post profit growth of a modest 5% or less this year. While investors would not welcome further downgrades, lower expectations reduce the risk of earnings disappointments later in the year. Data on market sentiment similarly suggests that investors are in cautious mood. Closer to home, Brexit related worries have led to UK growth downgrades, with ongoing uncertainty weighing on sentiment.

Portfolio implications

Our positioning has not changed substantially over the last month. We retain our exposure to global equities to benefit from continued earnings growth, although we are becoming more cautious at the margins and taking profits where appropriate. Emerging markets and China continue to look attractive. While we remain underweight bonds overall, our view on the asset class is becoming less negative. US Treasuries and bonds with inflation-protection would be our preferred fixed income investments. We also like alternative investments for their diversifying characteristics.

Author

Investment Team

Issued in the Channel Islands by Cazenove Capital which is part of the Schroders Group and is a trading name of Schroders (C.I.) Limited, licensed and regulated by the Guernsey Financial Services Commission for banking and investment business; and regulated by the Jersey Financial Services Commission. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.

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