Monthly market update: April 2019
Markets buoyed by central banks and prospects of a trade deal
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.
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.
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.