2019: Après moi, le déluge - A Late Cycle Rally as Part of a Protracted Market Topping Process
FIS Group, a manager of U.S. and global developed, emerging and frontier market equity portfolio strategies, issued its Q1 2019 Market Outlook, which provides a review of a tumultuous market in 2018 and offers predictions for what is to come in the year ahead.
“Looking ahead to 2019, there are a few areas in question for the world economy, both monetarily and politically,” says Tina Byles Williams, CEO and CIO of FIS Group. “Based on leading indicators, we expect U.S. growth to slow to around 2.5% in 2019, as the fiscal policy impetus from the 2017 tax law diminishes. Recession risk in the U.S. remains low for now, but if this changes it would likely trigger another leg-down in equities, setting the scene for what would ultimately be one of the best buying opportunities in years.”
FIS Group expects the U.S. shy away from IT, biotech and consumer stocks. Instead, the market will begin to favor cash-flow-producing businesses, at the expense of cash-flow-burning businesses such as Tesla and Uber. Q4 2018 market performance provided early signs of this transition, such as the relative underperformance of the U.S. equity market coupled with the underperformance of growth stocks relative to value stocks.
In the rest of the world, rising interest rate hikes, a slowdown in global trade, and retrenching of Chinese growth will remain a headwind for non-U.S. markets and cyclical sectors beyond the expected relief rally. Emerging markets will become more attractive as the U.S. dollar softens and Chinese reflation stems the decline in credit and industrial production.
“For 2019, we are neutral to emerging markets and continue to focus on defensive markets such as Thailand, whose financial profile is less exposed to U.S. dollar liquidity,” states Byles Williams. “Our emerging market portfolio will round out with a continued, although reduced, overweight to Russia and Indonesia. Russia’s macro-prudential profile and valuation remains attractive, and we believe that its current account and earnings will be boosted by increasing oil prices.”