1. Major equity markets could start to break down in Spring of 2019 as funds shift from S&P 500 and the Dow as investors diversify.
2. Emerging Markets – India, Brazil, Thailand and China could be the winners in 2019.
We are now in a war of narratives with regards to global equity markets and the possible pain that could come in 2019 and 2020 if in fact, there is a global recession, triggered by a trade war and a US and China economic slowdown. The narratives are side or flat trading for equity markets, a short and intense rally followed by a sell-off and finally the narrative of a weak and slow breakdown in the coming quarter that sees a weak equity index materialize slowly.
Some top asset managers are now looking to alternative investments such as bonds or emerging markets to balance their portfolios as they say that there is too much focus on equity markets. Since the Christmas Eve plunge, the S&P 500 has rallied 18 percent, with new funds flowing into the market at a record pace. This shockingly aggressive rally in January and February has some fund managers taking profit, taking risk off the table. This strategy is one that we cannot argue with. We at Classiarius have been talking about the EM market and more diversification.
In the US, some fund managers have been actively moving into EM. We have stated our markets of interest above, ones that we think will be attractive in this world of US China Trade Wars (we think the war gets much worse in 2019 and 2020, there is no short-term fix), and the continued breakdown of the global trading system, as it is tied to Bretton-Woods. Still, despite the quiet stance from the Fed in the form of a slowdown in the hike cycle, and the movement into EM, there will be a visible uptick in global unrest in 2020. Investing will be challenging.