After a 2018 that saw global equities struggling for direction in the first half, then reaching recent highs in August only to suffer a tech led sell off wiping out any gains across practically all asset classes, 2019 got off to a strong start led again by tech stocks but this time with a positive curve. The question now as always is where do we go from here? Much will be decided in the short term by ongoing negotiations in the US / China trade debacle, alongside rhetoric from the Federal Reserve in relation to their stance on tightening monetary control. Our view is that the trade negotiations will yield at the least a calming of further tensions and this will pave the way for the Fed to continue to raise rates, albeit a gentle path.
We remain cautious around equity valuations in general. Earnings in the US have largely surprised to the upside so far in 2019, but this against a much reduced set of expectations. European valuations remain comparatively subdued, but with reducing growth outlooks and political headwinds we do not expect a surge anytime soon. Indeed the return of cheap loans for the banking sector from the ECB shows a nervousness of these slowing economies turning negative. Emerging markets do, in our opinion, offer some value, should the trade negotiations go well and China’s renewed stimulus have the effect of halting the slide in their GDP growth, which they have certainly achieved in the past.
Holding fast on thematic and tech based stocks remains our default position, whilst taking profits to cash and including ample protection in our clients portfolio’s, will ensure any substantial change to negative sentiment has a limited damaging effect. We will be keeping a close eye on China’s economic data in the short term and see potential opportunities on those economies dependant largely upon their success.
So far our strategy of reducing exposure to more expensive managed funds in favour of a cost sensitive ETF / Structured approach is paying dividends, and we intend to continue to look for value in these two areas.
Brexit has in our opinion, been largely priced into European markets now, with perceived reduced risk of a ‘no deal’ exit and a more nonchalant view of the longer term negative effects of that divorce, if indeed it even occurs anytime soon or perhaps at all?