Perspective

Markets

Outlook 2019: Multi-asset


Johanna Kyrklund

Johanna Kyrklund

Chief Investment Officer and Global Head of Multi-Asset Investment

See all articles
  • 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

To find out more about the Multi-Asset Solutions strategic capability, please click here

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:

Global economy

Global bonds

Global equities

UK equities

Multi-manager

European equities

Japanese equities

Income

Sustainability

Asian ex Japan equities

European commercial real estate

Global cities

Commodities

 

The views and opinions contained herein are those of the Authors, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

 

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 Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

 

Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested.

 

Schroders has expressed its own views in this document and these may change (to be used if the 1st statement above is not being used).

 

Schroders will be a data controller in respect of your personal data. For information on how Schroders might process your personal data, please view our Privacy Policy available at www.schroders.com/en/privacy-policy or on request should you not have access to this webpage.

 

Issued by Schroder Investment Management (Europe) S.A., 5, rue Höhenhof, L-1736 Senningerberg, Luxembourg. Registered No. B 37.799. For your security, communications may be taped or monitored

 

The forecasts stated in the document are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future economic and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today’s date. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. We assume no obligation to provide you with updates or changes to this data as assumptions, economic and market conditions, models or other matters change.