Market Outlook 2019: A year to prepare and react

In view of continued market volatility in 2019, investors are advised to raise allocation to cash and turn more tactical.

Standard Chartered Bank’s Wealth Management Advisory expects global growth to slow in 2019 for the first time in three years, led by the Euro area and China. Inflation will remain under control. Against this backdrop, Standard Chartered sees increasing value in bonds and cash, especially relative to equities.

Alexis Calla, Global Head of Investment Strategy and Advisory at Standard Chartered Private Bank, said: “As we head into 2019, we see increasing value in bonds and cash and are dialling back on risk assets and raising the allocation to cash. The rationale for this decision is threefold:
(1) US cash yields have increased, both in absolute terms and relative to other asset classes once adjusted for volatility;
(2) Markets are expected to continue to be volatile in 2019; and
(3) Cash can be quickly deployed when short-term, tactical opportunities present themselves.”

Steve Brice, Chief Investment Strategist at Standard Chartered Private Bank, explained: “Equities could have a strong turn of the year, especially in Asia ex-Japan, but the longer-term risk-reward is deteriorating, in our assessment. December and January are typically strong months for equity markets and reducing trade tensions and US interest rate hike expectations suggest this year may not be very different. The two economic drivers that are likely to have the biggest impact on US and global sentiment would be any sustained easing in US-China trade tensions and another fiscal stimulus in the US.”

Tactical strategies

• Bonds – We are more optimistic about bonds heading into 2019 than we were at the start of 2018 and expect them to deliver positive returns. Emerging Markets bonds are expected to outperform Development Market bonds.
• Equity – We remain positive on global equity markets in 2019 but reduce it to a ‘core holding’ from ‘preferred’ due to expected increasing variability in return. US equities are most preferred and Euro area equities least preferred.
• FX – We expect USD strength to continue into the first few months of 2019, given relative US economic outperformance, interest rate differentials that are supportive, and ongoing trade tensions.
• Alternative Strategies – We continue to view Alternatives as a core holding going into 2019, alongside equities and bonds. We also continue to advocate a diversified alternatives allocation.
• Multi-Asset – We reduce risk in our diversified ‘multi-asset balanced’ allocation and ‘multi-asset income’ allocation, given increasing headwinds to our central scenario of positive equity markets amid rising volatility.