Is a rebound across global indices on the cards in 2019? Callum Keown asks top analysts for their predictions.
AS 2019 begins, the year inherits a smorgasbord of risks and uncertainty from a tumultuous 2018, which was characterised by market volatility, global growth concerns and emerging market crises.
US stock markets had their worst year in a decade and the FTSE 100 touched a new two-year low in December, having hit a record high in May.
There is even more uncertainty surrounding Brexit this new year than last – despite 29 March now being less than three months away and to make matters worse the risk of a no-deal Brexit has intensified.
With the US-China trade war and European Parliament elections added to the mix, it paints a tricky picture for the year ahead.
Uncertainty has played havoc with the markets in recent months and that could well continue to be a theme of 2019.
Deutsche Bank’s chief economist David Folkerts-Landau expected the global economy to expand this year but growth to level off in the US and recede somewhat in Europe.
But he warned that forecasting in these uncertain times was a testing business.
He said: “We are at a point in economic history where economic and financial forecasts are inherently uncertain because of the greatly increased uncertainty in the political environment both in Europe and the US.”
Berenberg’s senior economist Kallum Pickering said the “economics will follow the politics” and there was no reason to expect a recession, predicted by some.
Stephen Innes, analyst at currency trading platform Oanda said: “With so much uncertainty dotting the global growth recovery, markets will likely greet the new year on very shaky footings.”
So the year begins under a dark cloud of uncertainty and risk but how is it likely to pan out?
Market volatility over the past year is exemplified by the FTSE 100, which hit a record high of 7,859 points in May before touching a 28-month low in December after the US Federal Reserve hiked interest rates causing another global selloff.
The UK equity market has even been branded “uninvestable” by some analysts.
Interactive Investor analyst Richard Hunter said the “relentless purge of pessimism” could persist in 2019 as the full ramifications of Brexit become a little clearer.
AJ Bell’s Russ Mould said the blue-chip index had “a lot stacked against it” but argued it may even have a chance of hitting 8,000 points.
He said: “In the event of a ‘hard’ Brexit or ‘no deal’ scenario is it easy to envisage further substantial drops in sterling. That could help to fire the FTSE 100 higher, as it did in June 2016, given how two-thirds of the index’s earnings hail from overseas.”
“In the event of a ‘soft’ Brexit, or an unexpected delay in the invocation of Article 50, the FTSE 100 could enjoy a relief rally as some of the uncertainty is lifted.”
Hunter also noted that even a small change in sentiment towards the UK market could being a domino effect transforming the index “from an investment frog to a prince” in 2019.
The nature of investing may also change, a process which French investment bank Natixis said had already got under way.
Its most recent survey revealed that investors expected increased market volatility next year.
The survey of 500 institutional investors found that 79 per cent also favoured a move toward active investment and away from passive portfolio management due to the expected turbulence.
The US-China trade war, another catalyst in a poor year for global markets, also remains shrouded in uncertainty.
While it must be considered a downside risk, any positive sentiment or potential resolution would be a major boost to markets.
But TS Lombard’s Charles Dumas said the trade war “could easily move from lukewarm to hot”, hurting stock prices and aggravating the global slowdown, which began in earnest in mid-2018.
Dumas added that, although unlikely, Japan’s “huge and mounting” government debt burden could lead to a crisis that commentators have been expecting for the past 15 years.
Emerging market equities had a torrid 2018 underpinned by currency crises in Argentina and Turkey causing the gap to developed markets to widen.
The MSCI Emerging Market index has fallen by almost 25 per cent since the end of January 2018.
Markets economist at Capital Economics Oliver Jones said things were unlikely to get better in 2019 and forecast that the index would end next year a further 10 per cent down on its current level.
Jones said that despite a recent recovery, investors would move away from risky assets in general over the next 12 months.