Investment Perspectives, January 2019

Global financial markets were affected badly by the geopolitical landscape
In the wake of the unusually smooth financial markets observed in 2017, the past year has been a quite dramatic wake-up call for investors. Early-year euphoria in equity markets gave way to rising anxiety, due not only to economic and political issues, but also to extreme market behaviour.
If the U.S. economy was by far the brightest spot, reflected by outstanding corporate profits, a deceleration of growth was observed across other regions, in China and Europe in particular. This weaker economic trend was compounded by the escalating impact of the trade war led by Donald Trump on the rest of the world, with China being his main target. Financial markets were also affected by a number of political uncertainties which proved to be more detrimental than was the case during the previous years; the resolution of some of these issues are among the key factors for an improvement of the fragile sentiment currently prevailing in the markets. 

Model-driven trading brings chaos to the equity markets
The behaviour of equity markets towards the end of the year has been very extreme and difficult to justify; the overwhelming proportion of computerized trading, which has grown over time to around 85% of trading volume, goes a long way to explain the violent intra-day swings and daily returns, especially in a context of lower liquidity. Machine trading didn’t cause problems during the bull market, but models have triggered indiscriminate selling more recently on the back of weaker economic signals and market momentum. While it is impossible to predict when markets will have regained their composure, economic fundamentals and corporate profitability should drive market performance over the long term and not these short-term trading models.Global financial markets were affected badly by the geopolitical landscape.

CONTENTS

  • EXECUTIVE SUMMARY
  • 2018: REVIEW OF OUR INVESTMENT THEMES
  • 2018: ECONOMIC & POLITICAL DEVELOPMENTS
  • 2018: THE FINANCIAL MARKETS
  • 2019 : ECONOMIC OUTLOOK
  • 2019: FINANCIAL MARKETS’ OUTLOOK
  • 2019: ASSET ALLOCATIONEXECUTIVE SUMMARY

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Tags: Investment outlook