For advisers, the turbulent economic waters of recent years have been difficult to navigate – Brexit uncertainty, trade wars and monetary policy all continue to add pressure.
With this in mind, what can be expected of 2019? Are we to return to the depths of recession, or will the coming year signal a turnaround in fortunes for the global economy?
Andrew Bell, chief executive of Witan, is optimistic: “Equity valuations appear very reasonable to us, given that interest rates are set to remain low and assuming recessionary risks, such as from adverse trade policies, are avoided."
He adds: “Recent months have seen more encouraging news on trade disputes, interest rates, oil prices and even Brexit (where a cliff-edge, no-deal exit now seems improbable). Equity markets have chosen to focus on worries about slowing economic growth that may prove to be overblown.”
Not everyone shares such a positive outlook, however, with some expecting the bumpy ride to continue for much of the next 12 months.
Zehrid Osmani, portfolio manager of the Martin Currie Global Portfolio Trust, explains: “As we continue to look forward, given that we are in the later stage of the longest expansionary economic cycle in the financial markets, there is a growing risk of recession coming up in the next two to three years.
“For us, however, it isn’t so much about whether a recession will happen because it is likely. The more important aspect to reflect on and analyse is what shape the next recession will have; specifically, will it be a shallow or deep recession, and will it be short or long lasting?
"Our view is that it will be a short and shallow recession, and therefore there will be an opportunity for long-term investors to increase their exposure to equities in the next growth cycle.”
What goes down, must come up
The unknown quantities of a potential recession will also have a significant impact on the monetary policy decisions made by central banks, particularly as inflationary pressures mount.
On a global front, Schroders' chief economist and strategist Keith Wade forecasts an increase in inflation to 2.9 per cent for 2019, based on higher inflation in emerging markets as a result of currency weaknesses and the impact on import prices.
For the UK, however, inflation is expected to fall from 2.5 per cent in 2018 to 1.8 per cent in 2019 due to softer oil prices and on the basis an orderly Brexit would strengthen sterling against most currencies.
He says: “For the Bank of England, we look for two rate rises [in 2019], although this is dependent on a smooth exit from the EU with a transition period for the economy.
“Meanwhile, the European Central Bank (ECB) is expected to end its asset purchase programme in January 2019 and to raise interest rates in September. Although eurozone growth is expected to be weaker next year, it will still be above trend and sufficient for a central bank keen to start raising interest rates from ultra-low levels.”
