By Paul Thomas, Consultant, MRM
Markets and investors will be glad to see the end of 2018 following a slide in share prices in the second half of the year.
However, many of the factors that caused markets to fall have continued into the new year: US growth is slowing, oil has slipped back to just under $60 a barrel and, at home, progress on Brexit has ground to a halt.
So where does that leave investors?
Below, we ask three well-known industry experts where they think investors should – and shouldn’t – put their cash in 2019.
Steve Jones, chief investment officer, Kames Capital:
“Attempting to predict what may happen in 2019 is a daunting task. Oil prices have tumbled of late, bolstering worries about fading global demand most evident in sluggish growth across the Eurozone and a Chinese economy that seems stubbornly resistant to both fiscal and monetary stimulation.
“In addition, Japan has been hit by natural disasters that saw its economy contract in Q3, only compounding the structural issues faced by the Japanese economy. The US economy looks to be coming off the boil after a decade long boom, although it is still growing at a very healthy 2.6% annualised.
“Closer to home, the most obvious challenge is Brexit. Encouragingly, there seems considerable pent-up demand in the UK economy and the same, probably, for UK equity markets and sterling. While our politicians have it in their power to unlock this demand, they could also create a crisis. Markets have concerns over a hard Brexit but more difficult to price in is the uncertain impact of the Labour Party’s radical policy platform. If a bad Brexit looks like spawning a Labour government, then most prudent action may be to look elsewhere.
“Overall, by the end of 2019 I may become more fearful of these trends. In the meantime, I continue to favour equities over bond markets over cash. Within equities, I see the best value in the UK (politics permitting) and the US.”
Adrian Lowcock, head of personal investing, Willis Owen:
“The sell off last year is likely to have left some investors bruised and many looking to avoid stock markets, however we continue to see some value across global markets. We prefer Japan as valuations make the region cheap and the recent sell off has just added to this outlook. The Japanese market is sensitive to the US-Chinese trade war and any slowdown in global growth.
“Brexit uncertainty has made the UK look even more attractive as investors continue to shun the region and favour areas which have a lot more clarity. The domestically focused stocks, such as banks and housebuilders, continue to have a significant Brexit discount as the rhetoric suggests a chaotic Brexit and significant financial harm to the UK economy. Whilst some of this might come to pass the worst-case scenario is largely priced in for investors.
“Emerging Markets, like China, are attractively valued. Some though are more appealing than others. Asian EMs should continue to benefit from the closeness to China although they are of course vulnerable should that country slowdown much faster than currently expected.
“Technology valuations have recently demonstrated the risks and volatility high premiums can bring to share prices. Whilst they will continue to grow profits, the share price performance is likely to be more volatile – nothing goes up forever or in straight line.”
Laith Khalaf, senior analyst, Hargreaves Lansdown:
“It’s important to have a diversified portfolio but even more so with Brexit in the background. Because if you get a ‘good’ Brexit, the pound should rally and that should knock some of the shine off the big international companies and overseas holdings and equally should increase the price of domestic cyclicals. So you want some pure UK exposure in your portfolio.
“But if you get a bad Brexit, you expect the pound to fall back a bit and UK cyclical domestics to fall, so you want a bit of non-UK exposure. Unfortunately, we don’t know which one is going to pass at the moment. Within that, emerging markets look like good value and a good area to focus on, although that comes with volatility attached to it.
“I don’t like the look of gold at the moment, because interest rates are beginning to rise. However, if the global economy goes into reverse then interest rates here and the US might be pegged back, putting gold and bonds in a better light. That is, after all, the role they play in a portfolio, to provide some insurance against things going wrong.”