Investment opportunities and pitfalls in 2019

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For intermediaries only 

2018 was challenging for investors and we have already seen continued upheaval in the first quarter of 2019.  This uncertainty is driven by slowing global growth, Brexit, and the pace of interest rate increases.  Investment outcomes in 2019 are difficult to predict and may well surprise the majority of investors.

Here I note my top five predictions:

1. Diversified portfolios will become less diversified

I expect 2019 to confirm the end of a 30-year bull market in bonds. Bond yields could rise beyond market expectations, prices are likely to decline, and volatility may increase.

As a result, bonds may be less able to counterbalance equity risk and so multi-asset portfolios could become less diversified.

2. The biggest risk UK investors face is a rise in the £ sterling

The Great British pound is being put through the wringer once again with the latest round of Brexit twists and turns. Despite significant ongoing uncertainty around Britain’s exit from the EU, we’re entering the end-game with all sides seeking an amicable and economically sensible deal. Some sort of agreement remains the most likely outcome. This could provide greater trading certainty, higher confidence in the UK, and hence higher value for the £ sterling.

Such an outcome will reduce the sterling value of global assets in investors’ portfolios and could reverse gains made following the 2016 Brexit vote.

3. The FTSE-All Share will be the best performing global stock market in 2019

The UK stock market has underperformed other major stock markets since 2015 and now offers attractive relative value.  Clarity on Brexit and even modest domestic growth could provide catalysts for the UK market to re-rate and close the valuation gap versus other stock markets. The FTSE-All Share could be the big surprise of 2019.

4. Value to outshine Growth

Overlooked value has the potential to become more widely appreciated this year, as the market recognises strong dividend paying companies with modest valuation multiples. Moreover, with interest rate rises likely and growth already slowing down, investors appetites for expensive growth stocks could be somewhat diminished.

5. A resurgence in the popularity of traditional companies

Despite the recent market pull back, investors are still paying very high multiples for growth stocks such as Amazon. However, tech growth in 2019 may well disappoint and impact valuations. On the flip side, more traditional franchises such as the AA, with declining debt and stabilising revenue, could exceed low market expectations. Who knows, in 2019 the AA could outperform Amazon.

Past performance is not a guide to future performance. The value of investments may go down as well as up and investors may get back less than they invest.

Please be aware that this article doesn’t constitute investment advice and the information shouldn’t be considered as advice or a recommendation to invest in, or disinvest from, any particular security or wider market. It shouldn’t be assumed that any of the securities or markets/indices discussed in this article were, or will prove to be, profitable.