Investors will need to weather more volatility in order to capture opportunities in 2019, according to the Year Ahead report from UBS, the world’s leading wealth manager.
Global economic growth will decelerate next year to 3.6 percent from 3.8 percent in 2018, and company earnings will grow at a slower rate. However, a 2019 recession still looks unlikely, and the price of many financial assets has already moved to reflect uncertain prospects.
UBS Global Wealth Management’s chief investment office (CIO) enters the year with an overweight position in global equities. However, as the market cycle matures, investors should diversify and hedge their portfolios to guard against volatility as well as political and other risks. They should also take advantage of growth in fields like sustainable and impact investing, and pockets of value where financial asset prices are excessively low.
Mark Haefele, chief Investment officer at UBS Global Wealth Management, says: “Investors should retain positions in global equities but plan for market volatility. A slight slowdown in economic and earnings growth doesn’t mean no growth, and the recent sell-off has left a number of assets more attractively valued, but investors must also take into account the tense geopolitical environment as well as monetary policy tightening.”
The CIO recommends that investors should retain an overweight position in global equities as we enter 2019. Nevertheless, they should also hedge against volatility by holding overweight positions in medium-duration US government bonds and the Japanese yen, as well as focusing on quality companies and avoiding excessive credit risk.
They should also look to neglected areas of the market, including value stocks in the US and emerging markets, energy equities globally, and shares of financial companies in the US and China. Sustainable and impact investing continues to provide longer-term growth opportunities, as do emerging market and Japanese stocks, and US dollar-denominated emerging market sovereign bonds.
