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Every three months, I write an Investment Outlook, looking ahead to the next 12 months. In markets, each of these carries the same weight, of course, but, focused as we are on calendar years, the look-ahead in January always attracts more interest than usual.
We always launch the Outlook via a live webcast in which I take questions from investors. The latest took place yesterday - don’t worry if you missed it, you can watch the whole 30-minute broadcast in catch up here.
You’ll also find the Outlook report in two formats - a microsite to read on the device of your choice and a downloadable report to print off if you prefer not to stare at a screen. Video, microsite and report are all available here.
As well as my usual observations on the main asset classes and geographical regions, this quarter’s report focuses on ten key questions that I’m looking at in 2019. Some of these were mirrored by questions from investors on the webcast and there were plenty of new ones too. So, I do recommend both reading the report and watching the video, as we cover some different ground.
Picking out a few of the key questions, there was a lot of interest in where I think we are in the current bull market. If you had asked me this three months ago, I would have given a different answer, but the fairly savage correction in markets during the last quarter of 2018 has certainly changed the picture. I’m more optimistic than I was.
In particular, I feel much more comfortable about the US stock market, which looked tired and expensive in October but is significantly more interesting after the near-20% fall between October and Christmas Eve.
There are good opportunities in other markets around the world too. Japan is oversold, despite the evident headwinds. China and other emerging markets look to be an interesting contrarian opportunity too.
As I set out in the Shares section of the report, there are three key drivers of shares in 2019: the outlook for corporate earnings, the price that investors are prepared to pay for a share of these earnings and what alternatives are on offer. On all three fronts, I see reasons for optimism: earnings are still growing, valuations are not stretched and shares remain the best place to be invested.
Another area of interest on the webcast was what’s happened to the so-called FAANG technology stocks. This is highly topical at the moment because of Apple’s unexpected profit warning over the Christmas period. Questions included: where next for the sector; and have we reached ‘peak iPhone?’
Tech stocks were clearly a major driver of the bull market and they played a key part in the correction too. Investors can’t afford to ignore the FAANGs. What they shouldn’t do, however, is generalise about this varied group of companies.
Netflix and Amazon both fell sharply but ended 2018 higher than they started. Not so, Facebook, Alphabet and Apple. Facebook and Alphabet face regulatory scrutiny as never before. Apple is facing the challenge of a saturated market and consumers who are less impressed by the rate of innovation or the high prices of Apple’s newest ranges.
As ever when investors lose faith in a sector or wider group of shares, indiscriminate selling creates opportunities. Amazon continues to disrupt the retail sector, as the current spate of Christmas trading statements is confirming - yet its shares were 34% lower at Christmas than they were in September.
Unsurprisingly, a third area of focus on the webcast this week was the UK. With the Brexit negotiations mired in parliamentary procedures that few of us understand or care about, the uncertainty has never been greater. The good news is that this has created a real valuation opportunity for UK investors.
The number that I keep focusing on is the dividend yield on the FTSE 100. At 4.6% (nearly 5% at the recent low point), this indicates a very interesting entry point for anyone able or willing to take a longer-term view. At some point, the Brexit fog will lift. And when it does, we may well look back on today’s valuations as a blindingly obvious opportunity.
The FTSE 100, let’s not forget, stands lower than it did in 1999. I’m not at all surprised that in the New Year, top quality funds like the Lindsell Train UK Equity Fund (one of my picks for 2019) and Alex Wright’s Fidelity Special Situations Fund have bounced back strongly.
With so much to watch and talk about, this is a really interesting time in the markets. So please do catch up on my latest thinking in Investment Outlook 2019.
Five year performance
As at 31 Dec
Past performance is not a reliable indicator of future returns
Source: Refinitiv, as at 31.12.18, in local currency terms with income reinvested
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. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. 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.