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MoneyTalk - Outlook 2019

Jonathan Wright

Jonathan Wright - Fidelity Personal Investing

As the year comes to a close, it’s time to reflect on what’s happened over the last 12 months and look ahead to what 2019 might bring. In such uncertain times and with markets so volatile, investors will be playing close attention to what’s in store over the coming months. So what can we expect?

In the latest episode of MoneyTalk we asked six leading investors for their views on the year ahead. A number of themes emerged.

Trade wars

The trade war between the world’s two largest economies - the US and China - continues to be the big investment story of 2018. On 1 December a 90-day truce was called at the G20 Buenos Aires summit to allow the two countries to negotiate a resolution to their trade dispute. While this came as a relief to markets, the future outcome continues to remain uncertain following the arrest of Meng Wanzhou, finance chief of Chinese telecoms giant Huawei, over possible violation of sanctions against Iran.

Jeremy Podger, manager of the Fidelity Global Special Situations Fund, views the trade war as a key theme for global investors at the moment, particularly the impact further tariffs could have on trade and company margins as they cope with increased costs.

He comments, “If the trade tensions actually ease going into next year I would expect the countries outside the US to recover more fully. On the other hand, if the trade tensions escalate further we could see a further outperformance in the US.”

Continued US market momentum

The performance of the US market has certainly been robust this year and despite recent volatility is still enjoying its longest ever bull run; but can this continue? Kasia Kiladis, Investment Director for US equities at Fidelity, is positive. “Looking forward to 2019 we still see a positive growth trajectory for the US but maybe at a more subdued pace”, she says. She attributes this to the consumer - the work-horse of the US economy - benefiting from recent tax cuts as they feed down into the pockets of the average American.

But has the US become too expensive and should investors be concerned? Not necessarily. “The US has always commanded a premium valuation because it is much more defensive, less cyclical than other markets” says Kiladis. “There are still sectors that haven’t really felt the love by investors for a number of months, if not over a year now, and those are the areas where we’re likely to see growth in the coming months.”

Opportunities outside the US

Looking outside of the US, which regions should investors look at in 2019? Ayesha Akbar, manager of the new Fidelity Select 50 Balanced Fund, believes emerging markets are beginning to look interesting again. “Valuations really have come down quite a lot there this year but I think you need to be quite selective still in terms of which country and sectors you want to be invested in.” She is also keeping an eye on Europe. “Europe’s done fine domestically this year, wages have gone up because unemployment is going down and the European Central Bank is still quite accommodative, but it’s been overtaken by other events”.

Meanwhile Jeremy Podger sees opportunity in Japan as share price valuations are very low, “Over the past several years, we’ve seen margins and profitability improve and there’s been an improving focus on shareholder returns so that’s all good,” he says.

Inflationary pressure

Closer to home, trouble on the high street has been the other big story of 2018 in the UK. Leigh Himsworth, manager of the Fidelity UK Opportunities Fund, is acutely aware of this, “The state of the high street I think is indicative of the vast over supply of things that’s been caused by years of monetary excess which effectively kept the walking wounded going for longer”.

With inflationary pressures coming back into the system through wages and rental pressures, retailers have struggled to pass on these costs to their customers, let alone address the huge impact of consumers shopping online.

So should we be concerned about inflation rising next year? Sajiv Vaid, manager of the Fidelity MoneyBuilder Income Fund, isn’t too concerned. “There are signs that inflation is picking up through wage growth and companies reporting great cost pressures, but I think from an historical perspective they are going to still look pretty tepid.”

End of the bond bull market?

Rising inflation, which tends to lead to rising interest rates, is not helpful to bond prices that tend to move downwards in such an environment. Are we seeing the end of the 30-year bond bull market? Sajiv is sanguine. “With regards to the bond bull market being over, I think we need to step back and go over the reasons why yields have been so low and there are three structural reasons. Demographics, income inequality and the amount of debt. That really hasn’t gone away. So I’m very much still a bond bull.”

Volatility is here to stay

One thing all the investors can agree on is we’ll see more volatility in 2019. And it’s uncertainty that fuels this volatility. “It’s ultimately uncertainty that people fear and don’t like”, says Leigh Himsworth. “It’s causing the UK market to trade at a substantial discount to other markets, offering quite an interesting opportunity to invest at the current time. If you’ve got an investment horizon of three plus years this is a great starting point.”

It is often said that volatility creates opportunity. Those investors who are prepared to take a long-term view and look beyond the short-term noise, should have every reason to look to the year ahead with more confidence.

Watch the latest episode below or the full interviews at MoneyTalk - Outlook 2019

Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.