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What do global investors expect from 2019?

20 dec 2018
A conference organized by Goldman Sachs Bank was held in Hong Kong, which was attended by major investors from around the world. What do they expect from 2019 and which assets do they prefer?

This year market participants unanimously named shares as the best global asset, developing countries ’corporate bonds and cash took second and third places, according to a survey conducted among conference participants.

Shares were favoured by 33% of respondents, while 25% said that EM bonds would show the best performance, according to a January 25 Goldman survey.

Cash was chosen by 14% of survey participants, government bonds of developed countries - 13%, raw materials - 10%, and corporate bonds of developed countries - 5% of respondents, Bloomberg writes.

"Investors believe that the tension in trade relations between China and the United States may decrease or remain unchanged in its current state," Goldman strategists wrote in the review, referring to the survey results. "Politics and trade disputes are considered the main risks for stocks, then the economic recession follows."

The uncertainty surrounding a wide range of issues, from the policies of the Federal Reserve System and global trade to growth prospects and corporate profits, intensified last year.

The global stock index MSCI All-Country World fell in 2018 by 11%, showing the worst result since 2008, other asset classes also suffered significant losses.

Half of survey participants predict an increase in the MSCI ACWI index in the range of 5-10% this year. About 12% expect better dynamics, and 38% believe that the index will complete 2019 without change or decline. Considering that in less than a month the index has already grown by 6.3%, this means a relatively insignificant momentum until the end of the year.

Respondents were divided on the Fed's monetary policy trajectory. About 41% of respondents are waiting for one rate increase, 29% - two, and 20% say that the central bank will not change the cost of borrowing this year.

Meanwhile, it is worth noting that the next meeting of the Federal Reserve will take place already this week and now investors are discussing not so much the level of the rate as a possible pause in the process of normalizing the balance sheet account of the Fed.

Last Friday, The Wall Street Journal published an article in which it claims that Fed members are inclined to stop reducing the balance, as this is what leads to the greatest withdrawal of liquidity from the system and caused the collapse of markets at the end of last year.

For more information on this, we may already find out this week. However, if this is true, it will mean inconsistency of the Fed and could be a definite blow to reputation.

It is expected that the US central bank will keep the interest rate unchanged after nine increases from 2015. But investors see the possibility of a relatively “dovish” tone in the Fed’s press release following the meeting or in Powell’s comments, which may contribute to lower bond yields. Market participants are also interested in any hints about whether the regulator is approaching the completion of the process of reducing assets on its balance sheet, which, combined with the agreement to resume the work of the federal government, can increase risk appetite to the detriment of US Treasury bonds, Bloomberg writes.

By the way, it is worth noting that, starting from the next meeting, the press conference of the Fed Chairman will be held every time - this has never happened before; this is a completely new stage of communication between the regulator and the market.