2019 - Investment predictions

For investors, there is uneasiness around the year ahead. 2018 finished as a poor return year which was unexpected given 2017’s solid returns. Even though 2018 saw good global growth, the Banking Royal Commission, US Dollar strength, fear of the Fed, President Trump’s geopolitics, and global desynchronization all impacted the market. So how is 2019 shaping up? 

Global Growth

AMP Economist Shane Oliver predicts in a recent article from 'Oliver’s Insights – 2019 a list of lists', that Global Growth will weaken further in the next few months but then stabilize resulting in okay global growth of around 3.5% this year. Supporting this is the easing global monetary conditions, likely delayed policy response from the Fed because of market volatility and an absence of the usual excesses that precede recessions.

Global inflation is likely to remain benign helped by the slowing down of growth in 2018 and a fall in energy costs. A tightening US labour market means they are most at risk whilst Australia’s growth will likely be less than expected due to the housing downturn.

There is still the expectation of instability due to the lower level of spare capacity in the US and ongoing political risk.

A continued slowing in China would be a major concern for global growth and commodity prices and this is something to watch. However, the Chinese Government’s low tolerance for sharp slowing in growth and an easing of monetary and fiscal policy means that Chinese growth won’t slow much. Also, in the absence of much lower savings (debt growth driver), rapid deleveraging would be dangerous and the Chinese Government knows this.

Markets in 2019

Australian shares are forecast to be low early in the year, recovering well towards year end. Globally, shares could still make new lows early in 2019 with recovery through the year from improved valuations, reasonable growth and profit due to the increased policy stimulus.

Predicted falls in house prices across all capital cities will continue especially in Sydney and Melbourne due to increased supply, tight credit, reduced foreign demand and potential tax changes under a Labour Government. Unlisted commercial property and infrastructure will see slower returns with particular impact to retail properties.

Bonds continue to provide an excellent portfolio diversifier even though low yields are likely to see low returns. The same can’t be said for cash and bank deposits due to the likely poor returns as the RBA cuts the official cash rate to 1% by year end.

The $A is likely to fall in the $US0.60s as the gap between the RBA’s cash rate and the US Fed Funds rate will still likely push further into negative territory as the RBA moves to cut rates.

Will Australia have a recession?

The hype around the housing cycle downturn and its impact on consumer spending will detract around 1-1.5 percentage points from growth. Shane Oliver, AMP Economist, forecasts that growth will likely be constrained to around 2.5-3% but recession is still unlikely (Oliver’s Insights – 2019 a list of lists). Non-mining investment and infrastructure spending, expected RBA cash rate cut, predicted drop in $A which to support growth, and the fading growth drag from falling mining investment will all support this.

Tips for Investors  

Nobody likes to see their wealth fall and times like the present are stressful.  For practical long-term investing, follow these tips:  

  • Intermittent drops in the share market are normal. Selling shares after a sharp fall will only result in a loss. Focus on a well-planned, long term investment strategy, and don’t sell on the basis of emotion.

  • Look for opportunities when growth assets fall and offer higher long term return protects. Shares often bottom at the point of maximum bearishness so the time to buy is when everyone is negative.

  • The income flow from a diversified portfolio of shares is attractive because while shares have fallen in value, the dividends from the market haven’t.

  • Periods of relative high returns like in 2017 are usually followed by weaker years, this is because it’s a low nominal return world. Low nominal growth and low bond yields and earning yields mean lower-long term returns.

If you are looking to get ahead this year or have questions about your investment strategy, please call your Prosperity Financial Adviser on 1300 795 515 to discuss.

John Manuel is an Authorised Representative of Prosperity Wealth Advisers Pty Ltd (ABN 32 141 396 376) is part of the Prosperity Advisers Group and an Authorised representative of Hillross Financial Services Limited, Australian Financial Services Licensee 232705. This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. Readers need to consider their own financial situation and needs before making any decisions based on this information.