Perspective - Outlook 2019

Outlook 2019: Multi-asset

The traffic light for investing is turning from green to amber, but it's not time to slam on the brakes just yet.


Johanna Kyrklund

Johanna Kyrklund

Global Head of Multi-Asset Investments

  • 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 need cheaper prices to entice investors to take risk and earlier last year we took our strategy down a gear. We still see opportunities to generate positive returns, however.

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.

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