Investment Views

26.03.2019
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March 2019

Here we summarise our Investment Committee's immediate outlook for the primary asset classes and major equity markets.

Investment Views for Mar 2019

  • Positive
  • Neutral
  • Negative
Asset Class Current View Outlook
Equities

On a relative basis we continue to favour equities, despite the continued slowdown in the global economy. A limited trade deal between the US and China is thought to be largely priced in to markets and so a significant boost to equities is only likely if existing tariffs are removed. Overall returns are expected to be muted, and geopolitical factors are expected to continue to cause episodic bouts of volatility.

Fixed Interest

With the continued slowdown in global growth and underlying inflation more likely to fall than rise, monetary policy tightening is off the cards in almost all major economies. For many, there is a distinct possibility of the return of policy loosening, and the European Central Bank has already begun to take steps as the region’s economy slows. This outlook will make bonds more attractive and yields may shortly reach an attractive entry point, especially in the US, but risks remain and so for now we remain neutral.

Property

The shift in consumer spending habits has stimulated demand for warehouses at the expense of retail units as a source of rental income. Student- accommodation, build-to-rent and the healthcare sector continue to offer opportunities. The slowdown in economic growth and Brexit uncertainty is holding back business investment in both the UK and the euro-zone and is acting as a dampener on returns, even though relative yields remain attractive, for now.

Alternatives

Industrial commodities - current prices largely reflect the news on trade talks and the Chinese stimulus. Consequently, prices could fall back on signs of slower US growth, the absence of a rebound in Chinese demand and any increase in risk aversion.

Oil – slower economic growth will weigh on oil demand and despite OPEC operating within its target production level US production continues to rise, pushing the oil market back into surplus. We expect oil prices to soften.

Gold – with its safe-haven qualities and the US dollar expected to weaken, we expect demand to grow.

Absolute return – offers the potential to dampen volatility and provide some downside protection, but returns are often moderate at best.

Cash

In the absence of any inflationary shock, short-term UK rates are unlikely to rise and so cash currently serves only as a diversifier, helping to reduce portfolio risk by dampening volatility.

Equity Region Current View Outlook
UK

Brexit issues and domestic political fragility continue to cause uncertainty for businesses and investors, although any ‘deal’ with the EU should release some latent demand for the economy. Sterling’s relative value is likely to dictate the market direction until the ‘fog’ of Brexit clears.

US

The economy remains relatively solid but is showing signs of a slowdown, which explains the Fed’s recent pronouncement that US interest rates are unlikely to rise further in 2019. With core inflation likely to remain subdued and wage growth on the rise corporate earnings may be squeezed, potentially hampering significant upward movement in equity prices.

Europe

Data shows that the euro-zone economy has shifted down a gear and is likely to remain very weak. Global trade issues, Brexit, continued austerity, and headline risk around European elections continue to act as headwinds.

Japan

The upcoming tax hike, the global slowdown and the strength of the yen (reflecting its safe-haven qualities) are likely to be significant headwinds for the economy. The Bank of Japan is expected to remain supportive, but with little sign of additional measures growth this year may be weaker than hoped for.

Asia Pacific and Emerging Markets

Although we expect the pace of growth in emerging Asia economies to be weak the fundamentals remain largely positive. China’s economy remains important to the region and, although its domestic momentum is faltering, the authorities are expected to continue to be supportive which should lead to some stabilisation as the year progresses.

Risk warning: Investors should be aware that past performance of investments is not a reliable indicator of future results and that the price of shares and other investments, and the income derived from them may fall as well as rise. The content of this bulletin is for general information and reflects the general market view of Parallel Investment Management Ltd. - it should not be interpreted as recommendations or advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of the content.

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