Outlook for the coming months – opportunities and risks ahead
Well into the new investment year, we have looked into the crystal ball to point out the trends that investors should be particularly aware of. In the field of macroeconomic, we expect the wide divergences between the regions to be less noticeable and we do not expect a US recession to manifest itself. However, it is important to emphasise that the US economy has entered the late cycle phase, which usually spells out wider market fluctuations. We expect this year to be a repetition of 2018 volatility-wise and investors must yet again be prepared for high volatility, which is fully in line with standard historical performance in the financial markets.
Investors back on track
Should the above scenario unfold, it could from time to time translate into risky assets running into storm in the coming months. The performance of asset classes, regions and sectors will consequently vary throughout the year and such a market environment offers both opportunities and risks.
Currently though, the sentiment is tense, almost euphoric, and this is often a good indicator of decreasing risk appetite in the short run. Investors have regained lost terrain from 2018 and positive returns have prevailed throughout. China especially has surprised on the upside, which has contributed to both a general uptick of risk appetite and a renewed focus on the emerging market complex in general.
Independent financial expectations
Evidently, we are not the only investment professionals who have assessed financial expectations. Late last year, an expert panel published a new edition of forecast assumptions (estimations prepared by Insurance & Pension Denmark, the trade organisation for the insurance and pension industry in Denmark), which set out a standard for investment returns and inflation assumptions utilized in pension projections. The outlook for the returns on developed-market bonds in the years to come has been slashed significantly, while the outlook for returns on equities has been reduced moderately.
Ghosts of the past
We are in general fairly confident about the investment year 2019 despite an environment where developed market bonds will still be struggling to fill their former role as return buffer when risky assets run into a storm. The issues surrounding Brexit, the trade war and a deteriorated growth outlook are among the old unwelcome guests from 2018. Although the troubles of the past are unlikely to be conclusive of tomorrows’ performance, we are prepared for both new head- and tailwinds, which will shape markets and returns in 2019.