18 September 2019
Challenges for Investors in 2019 and Beyond
The US has done well, but for how much longer?
The fiscal surge following the launch of the government’s new tax policy upended many market forecasts. The resultant uptick in earnings and growth, along with the appreciation of the dollar against other major currencies was a welcome boost amidst ongoing political turmoil. But this surge is not expected to last, and the first question investors need to be asking is “Will the Fed be able to slow the fall?”
The Fed’s interest rate increase policy could have a drastic effect on market behavior, and it is likely the dollar will take a downturn. The US government’s unpredictability and revolving-door policy will likely make outcomes even more uncertain.
Recession doom-sayers issue warnings for 2020.
Following the Fed’s policy are worries over the direction that corporate growth and earnings will take this year. Corporate debt-to-cash ratios alone are reasons to worry. The increasing gap between corporate and US government bond rates has led to calls for corporations to mend their ways and slow these damaging policies. Whether that can happen in 2019 remains to be seen, recent economic indicators are not optimistic.
US equities still worth a look.
If the economic shock can be cushioned by appropriate monetary policies by the Fed, there will still be value to be found in equities in 2019. The S&P has done well so far in 2019, investors should be wary of overvaluation though.
Investors looking to the east left to wonder.
US-China trade relations may be on the rocks, but a strengthening yuan (+7%), and a focused approach on stimulus from the Central Bank seem to be helping the economy. With bank lending standards relaxed, and government borrowing expanded to as high as 3% of GDP, some stability can be expected for this year at least. The question is whether the ongoing trade war with the US will upset the status quo. With no end in sight for this spat, corporate assets could start being squeezed, and inflation reawakened. Alongside potential China problems, there is pressure on emerging markets in other Asian countries, including Japan.
Emerging markets offer opportunity.
The emerging markets have generally continued to improve, yet 2017 highs have never been regained. Luckily global growth, while slowing, has remained stable. Growth, barring a dip in May, has continued in 2019 so far, but these opportunities remain vulnerable to shifts on a global level.
Investors need to keep an eye out for any change in the weather.
Most analysts do not see recession right around the corner, but they are urging investors to stay flexible and be ready to change direction. It is unclear whether the anticipated downward trend will signal a short post-peak dip, or something more serious.
With geopolitical events having an increasingly greater impact on profit in 2019, investors must watch out for changes in policy that will have short and long term effects.
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