Publications
Partners
A slowdown in global growth and corporate earnings is forecast for 2019, according to the Global Investment Outlook 2019, released by international investment management firm BlackRock on Thursday.
Its 2019 outlook forum brought together about 100 investment professionals to discuss the global economic outlook and identify market themes.
Conclusions include an expectation that the US Federal Reserve's policy will become more data-dependent "as it nears a neutral stance, making the possibility of a pause in rate hikes a key source of uncertainty".
The report describes US financial conditions as still being relatively loose, but tightening.
"We see global growth declining, with the US outperforming its developed market peers and China stabilising," states the report.
It concludes that markets are vulnerable to fears that a downturn is near, even as the actual risk of a US recession is seen as low in 2019. Nevertheless, a rise in recession fears is forecast to be a major risk for markets in 2019.
"Trade frictions and a US-China battle for supremacy in the tech sector loom over markets. We see trade risks more fully reflected in asset prices than a year ago, but expect twists and turns to cause bouts of anxiety," states the report.
European worries
Europe is a worry though, according to the report. While no immediate flare-up is expected in the region's political risk, but investors are under-appreciating medium-term threats to European unity.
"We worry about European political risks in the medium term against a weak growth backdrop...European political risks are front and centre as emerging market (EM)-specific worries recede," states the report.
It concludes that emerging market assets have cheapened, offering better compensation for risk in 2019.
China is easing policy to stabilise its economy and the report sees "the credit impulse" turning positive in 2019 and fiscal policy becoming supportive.
The key risk for EM assets is forecast to be if the Fed tightens faster than markets anticipate, renewing the dollar's uptrend and tightening financial conditions for countries with external liabilities.
Nevertheless, the report is "cautiously positive" on EM assets for 2019.
"Corporate earnings growth is likely to slow in 2019, but we see US and EM companies best positioned to deliver on expectations," states the report.
It notes the SA elections - expected sometime between May and August next year - as one of the dates to watch in 2019.
Investments
BlackRock says it prefers stocks over bonds, but its "conviction is tempered". In equities it looks at cash flow, sustainable growth and "clean balance sheets". The report points out that equities have taken a hit in 2018 despite solid earnings growth.
It regards the US as a "favoured region" and sees EM equities as offering "improved compensation for risk".
In fixed income, BlackRock has upgraded US government debt "as a ballast against any late-cycle risk-off events". It prefers short to medium-term maturities.
"In a total portfolio context, we steer away from areas with limited upside but hefty downside risk, such as European stocks," states the report.
"We see the process of tighter financial conditions pushing yields up (and valuations down) set to ease in 2019...Increasing uncertainty points to the need for quality assets in portfolios — but also potential for upside should market fears about trade ebb in 2019."
BlackRock advocates allocations to quality bonds — twinned with targeted risk-taking in assets where the risk/reward looks most appealing.
"We see potential for late-cycle equity gains but view portfolio shock absorbers such as US Treasuries as key diversifiers as recession fears rise," states the report.
