Looking into 2019, our macro mavens see global growth peaking mid-year as the US tax relief and China stimulus come to a close. That said, they are not convinced a recession is assured or that the trade war will scuttle expansion, but China’s first full-year deficit will put downward pressure on the renminbi.
Long-duration US Treasuries seem to be the only recommendation resilient to all likely scenarios we anticipate (clearly the return of inflation is not one of those). Therefore, we’re not surprised that the recommended style bias for equities remains bond-proxies. We see emerging market outperformance as the next phase after impending lows.
Our thesis is that EMs have maintained a favourable domestic policy mix and, with external headwinds receding, growth will be well supported even as DM growth slows. The growth differential will, therefore, swing back in EMs’ favour. The risks to the outlook are four-fold: (1) A repeat of 2018 with USD strength, (2) US recession triggered by corporate credit risks, (3) trade tensions and (4) political risks in the EMs.
We expect Asia to soon enter the third and final wave of a bear market – a credit crunch, as an accelerated growth slowdown interacts with property market corrections. An economic recovery in the second half of 2019 (H2-2019) will be Emerging Asia’s time to shine, with a widening growth differential over slowing advanced economies into 2020 – a defining moment when it starts to be widely appreciated as the undisputed locomotive of the world economy. We see a favourable environment in India and Indonesia from an anticipated acceleration of growth, a greater divergence with developed market growth and solid capital inflows.
After 3.8 per cent in 2018, we expect global economic growth to slow to 3.6 per cent in 2019. US growth will be constrained by ebbing fiscal stimulus and higher interest rates. The decline in global growth will mean a weaker tailwind for global markets, which could begin to anticipate an end of the economic cycle as 2019 progresses. We anticipate 9 per cent earnings growth in emerging markets and around 5 per cent in the Eurozone. If trade tensions were to spread, investors may pivot to equities in domestic-oriented economies like India.
Credit Suisse Wealth Management
We expect the global economic growth cycle to extend further in 2019, albeit at a slower pace than in 2018. Although we remain positive on emerging markets (EMs), we expect moderate returns from Indian equities in 2019, given the market’s valuation gap with other EMs and a potentially weak mandate for the new government next year. We suggest that long-term investors look beyond any election-led volatility and rather focus on corporate fundamentals to build portfolios as corporate earnings growth is likely to accelerate.