Andrew Mulliner, Portfolio Manager within Global Bonds, shares his thoughts on the risks and opportunities ahead for fixed income investors in 2019, which he believes revolve around three big market themes.
What are the key themes likely to shape markets in 2019?
We believe that the three big themes for the markets are global growth, trade wars and monetary policy.
Growth divergence between the US and the rest of the world has been a critical factor in driving currency and general risk moves. Much of the divergence of 2018 has been laid at the door of US fiscal policy. If pro-cyclical fiscal spending has indeed been the driver of last year’s growth divergence, and if the fiscal impulse will be receding in 2019, then next year should see a reversion back to trend and with it, a potentially more risk-friendly environment. However, with global growth (ex US) slowing into the end of 2018, there is the chance that a growth reversion to trend is simply too optimistic and investor concerns regarding the end of the economic cycle may well end up a material worry for the second half of 2019.
The evolution of the bubbling US-China trade war will also play a significant role in how markets perform next year. Any further escalation can act as a handbrake on global growth and investment sentiment for companies and markets. A more benign outcome could be a healthy tailwind for risk assets.
If 2018 marked the beginning of the end for extreme accommodative monetary policy, 2019 may well see that trend reach maturity with balance sheet growth turning negative and the real possibility that we see the end of negative interest rate policies. All this points to another year of increased financial market volatility and an adjustment for bond market participants.
Where do you see the most important opportunities and risks within your asset class?
As with the above, we expect 2019 will probably share some similar characteristics with 2018. Therefore, we believe an active approach will remain imperative for navigating and maximising opportunities in what will be a challenging investment environment.
It also means that investors need to have a realistic view of the total returns on offer, particularly in fixed income. As with 2018, 2019 may see another year of muted/negative returns from many fixed income asset classes as credit spreads and interest rates normalise after years of central bank suppression. Investors need to be crystal clear about not only what they own (and what they can expect) but also why they own it.
How have your experiences in 2018 shifted your approach or outlook for 2019?
At the start of the year it was our view that we were heading for, at the very least, a long-overdue slowdown, or soft patch, and we have certainly seen that. I felt that the first quarter of 2018 was as good as it was going to get in terms of global growth. Our response has been to focus on the stocks in our portfolios, and on further stock-picking.
Which themes have the potential to redirect markets in 2019? Download our Infographic to find out
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.
Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
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