Panorama – Investing in 2019: Navigating volatile markets

Posted on 02/08/2019


This article is sponsored by UBS Asset Management.

The double digit drawdown in global equities in fourth-quarter 2018 provided investors with compelling evidence, if it were needed, that the challenges they face globally in 2019 have increased in both number and significance. The aging cycle, reduced support from monetary policy, higher equity market volatility, trade wars, Brexit, European political risk and rising bond yields, to varying degrees all threaten risk assets. Throw in the perception of heightened emerging market (EM) vulnerability to desynchronized and moderating global growth drivers, higher US funding rates and a stronger US dollar – and the quandary facing asset allocators looks stark.

So how should investors approach these challenges? In the Mid-Year edition of Panorama, we argued that investors would have to think differently, be more precise in their risk-budgeting and work harder for risk-adjusted returns than they have done for the majority of the post-financial crisis period. Six months later, that view remains unchanged.

As ever, genuinely diversified risk premia should, in our view, remain the bedrock of investors’ portfolios. And as Ryan Primmer, Head of Investment Solutions, points out in our macroeconomic outlook, above-trend global demand growth, robust corporate earnings and more attractive valuations are still likely to support positive returns for global equities in 2019.

In our view, this is not yet the end of the equity bull market. But on a risk-adjusted basis global equity returns are likely to be constrained by a continuation of the higher volatility regime and investors’ understandable reluctance to pay peak multiples for what might prove to be peak earnings.

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