Outlook 2019: Multi-asset
- The economic backdrop looks more challenging and there is a risk of US recession in 2020
- Markets may prove volatile and government bonds can be a useful diversifier
- There are still opportunities for positive returns; we highlight low emerging market valuations
We move into 2019 in a sombre mood after a year of challenging markets. While it is tempting to blame the political headlines, the reality is that economic growth outside of the US has been disappointing. Combined with rising rates in the US, this has led to weaker prices pretty much across the board.
Economic cycle is turning more challenging
Based on the indicators we track, there is now a reasonable probability of a US recession in 2020 as the impact of fiscal stimulus fades. We are cognisant that we are moving into a more challenging phase of the cycle.
Growth in Europe and Asia remains dependent on an acceleration in global trade, which we view as unlikely. At the same time, the best we can hope for from the major central banks is that they step back from their planned withdrawal of liquidity.
Still opportunities for positive returns
Against this backdrop, we still see opportunities to generate positive returns.
The US 10-year yield is sitting quietly around 3% and we expect only a couple more rate hikes from the Federal Reserve in 2019. This should underpin equity valuations and provide diversification benefits from bonds in a multi-asset portfolio.
Lower oil prices should support consumption and put a lid on inflationary pressures. Emerging market valuations are provocatively low and provide a cushion to political concerns.
Caution needed amid likely volatility
In 2019, we expect markets to oscillate based on an assessment of the probability of US recession. The traffic light is turning from green to amber. We would emphasise more cautious investments, but we don’t need to slam on the brakes just yet.
The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors. Forecasts should not be taken as advice or recommendation.
The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested
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This article is part of our Outlook 2019 series, please check back for more over the coming days and weeks. The previous 13 in the series can be found by visiting our outlooks hub and / or by clicking the links below:
The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored.