With 2018 coming to an end, financial professionals have started assessing what is to come for financial markets in the new year.
While some experts have predicted potentially strong growth, although at a slower pace compared with previous years; M&G, during its 2019 Global Market Briefing event attended by International Adviser, expressed some concerns about the year ahead.
US houses and cars
The US and China have been leading global market growth, but there are some familiar signs creeping into the American economy that are red flags for some financial experts.
For instance, the US housing market has seen high levels of unsold new houses for seven months. “It’s the first time since 2011,” said Jim Leaviss, head of retail fixed interest at M&G.
“Traditionally, when you get through seven months of unsold supplies you get a recession in the US. Housing has got a really powerful multiplier effect. When you buy a house, you don’t just buy a house, you buy carpets, TVs, furniture etc.
“Back in 2007 this was a very strong signal that the US was heading towards a recession.”
However, the housing market is not the only one showing similarities to the pre-2008 economy. The automobile industry is also following a similar path, Leaviss said.
“Global car sales are falling by 10% a year, which is something we last saw in 2008. Something big is going on that’s having an impact in the US economy through another route. This is, I think, a sign that global growth is having a bit of a slowdown.”
Mid-term bounce
However, the recent mid-terms elections might have avoided the peril of a crisis, said Stuart Rhodes, director of global equities and manager of the M&G Global Dividend Fund.
The outcome of the mid-terms means that president Donald Trump will not have any support from the House of Representatives for further tax cuts. This could result in a less aggressive strategy and start a slowdown in the US economy, where tech companies have been leading the market for most of 2018.
Finding the up side
As a result, if the US does slow down, there are going to be several “attractive” investment opportunities.
Tristan Hanson, manager of the M&G Global Target Return Fund, believes global equities are showing attractive levels for investors. The yield for global equities is at 7%, compared with 10-year real returns in the US of 1% and negative levels in Germany.
Similarly, there’s greater value for Asian and Japanese equities than there is for US ones. Hanson also claimed that call options are safer in Europe because there is less volatility than in Asia.
That is something Leaviss agreed with, as he said EU bonds look “more attractive” as there is currently a fairer value in credit than there was at the beginning of 2018.
These possibilities come at a time when even “traditional safe havens”, like gold, haven’t provided much of a buffer to investors, said Ritu Vohora, investment director at M&G.
