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Reasons to be cheerful 2019

24th December, 2018

2018 hasn’t been a classic year in markets, here are a number of reasons why investors can look forward to 2019 with more enthusiasm.

Investors may be looking forward to a well-earned rest from the caprices of financial markets in 2018 and are now contemplating a few weeks spent being tactful to difficult relatives or avoiding sprouts. However, the prospect of a tough 2019 may hang over the festive celebrations, but should investors fear the year ahead. Here are some, potential, reasons to be cheerful.

◾Equity market valuations are lower: at a time when earnings have outpaced expectations but markets have fallen, valuations look notably more attractive at the start of 2019 than they did a year ago. Yes, sentiment is poor, but there will be some winners emerge from the rout.

◾Most of the bad news appears to be in the price: In spite of the parliamentary horror show of Brexit, sterling has been little changed this week. This suggests that a ‘no deal’ Brexit is largely in the price of UK assets. Anything better and there may even be a bit of an upswing.

◾A recession remains unlikely: Peter Harrison, chief executive at Schroders said: “Our economists expect a gradual slowdown in growth in the US in 2019 and 2020. The emphasis is on the word gradual: we do not see a recession as likely in 2019 (although not inconceivable in 2020) as many of the forces that led to a strong year in the US in 2018 are still in play.”

◾The tightening cycle may be drawing to a close: Weaker economic growth is likely to see the Federal Reserve and other central banks rein in interest rate rises. Continued low borrowing costs should support growth. At the same time, if populism continues to grow, it is possible that countries will relax austerity measures.

◾The Dollar may weaken: Harrison also suggests that weaker US growth may see the Dollar losing ground against other currencies: “This is good news for emerging stock and bond markets as a strong dollar sucks money away from these markets. Emerging markets, including China, have suffered particularly badly in 2018 and we would not be surprised to see them recover in 2019.”

Lower rates of economic growth are inevitable, but with hard work, investors will be able to find winners. In this way, 2019 may be better than 2018. So you can sit back and relax over the Christmas dinner.

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