Five things investors should not fear in 2019

Investors had a rollercoaster ride in 2018, with markets limping into the new year after reaching record highs just a few months back, but here is why things may not be as gloomy as they seem.

Investors had a rollercoaster ride in 2018, with markets limping into the new year after reaching record highs just a few months back.

There has been no shortage of issues for them to worry about: Brexit, fears of a US recession and US-China trade tensions have all hurt sentiment.

Given some of the macroeconomic rhetoric, you could be forgiven for thinking the global financial system is on the verge of collapse. But there are good reasons to believe 2019 will be decent for investors.

Although there are still major issues to be thrashed out over Brexit and US-China trade relations, it is unlikely they will get out of control.

Meanwhile, predictions the US economy is about to trip and fall are overblown.

So, why are investors worried? We think their fears are exaggerated – and they actually have plenty to be cheerful about. Here are five things investors should not fear this year.

Terence Moll is a chief strategist at Seven Investment Management

Investors had a rollercoaster ride in 2018, with markets limping into the new year after reaching record highs just a few months back.

There has been no shortage of issues for them to worry about: Brexit, fears of a US recession and US-China trade tensions have all hurt sentiment.

Given some of the macroeconomic rhetoric, you could be forgiven for thinking the global financial system is on the verge of collapse. But there are good reasons to believe 2019 will be decent for investors.

Although there are still major issues to be thrashed out over Brexit and US-China trade relations, it is unlikely they will get out of control.

Meanwhile, predictions the US economy is about to trip and fall are overblown.

So, why are investors worried? We think their fears are exaggerated – and they actually have plenty to be cheerful about. Here are five things investors should not fear this year.

Terence Moll is a chief strategist at Seven Investment Management

A US recession

The big question for global growth is the US. It is the developed world’s growth engine at the moment, and US recessions have often been associated with equity crashes in the past.

Although some commentators fear a recession in 2019, we are not overly worried.

The US is currently growing at around 2.5%. From these levels, it normally takes at least two years for growth to turn negative.

Moreover, the usual imbalances associated with recession – soaring inflation, a housing crunch or a commodity price shock – are largely absent. We think a US recession is unlikely before late 2020, at the earliest.

Trade wars

So far, tariffs have been implemented on around 2.5% of world imports, corresponding to less than 0.6% of world output. They are certainly a negative for growth, but on a tiny scale to date.

Although they could get much worse, the US and China will reach a compromise that will not harm their economies (and their people) too much.

The UK

Brexit is a shambles and investors are worried the UK could end up exiting with no deal in place, which would be a really terrible deal, in March.

But it is in the interests of both the UK and the EU to reach a broadly sensible outcome. We think a deal that is not too painful for the UK will materialise.

A Corbyn government

Jeremy Corbyn’s bark is worse than his bite. If he came to power he would be so constrained by the range of views within his Labour party, and by bus.siness pressures and economic restraints, he would not be able to do much that would derail the UK’s financial market.

Volatility

Markets are volatile. They move up and down. Whenever markets fall, commentators concoct stories to explain why they have fallen – stories that are often alarming and are frequently complete inventions, with no basis in fact. It is best to ignore the headlines.

Markets were exceptionally quiet in 2017. Volatility returned to more normal levels in 2018, and we expect more of the same in 2019. This is not something investors should worry about because it is simply how the financial world works.

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