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Key reasons why investors should be optimistic in 2019
Another new year is upon us, and 2019 could turn out to be a highly profitable one for investors.
There are indeed many reasons for investors to be optimistic in 2019, with three key tailwinds that will positively impact their returns this year.
That said, it’s important to take into account the headwinds that could affect investor outcomes during the coming 12 months.
For investors with a sufficiently diversified portfolio, the year ahead looks set to be another great year.
As I have been quoted as saying in Forbes, International Investment and Khaleej Times, amongst other media, the first key reason why I believe investors should be optimistic is that stock market valuations are, on the whole, not overstretched, apart from a number of sectors in the U.S., UK, Europe and Japan. There is certainly value being offered in emerging markets. With ultra-low interest rates in Europe, Japan and the U.S., it is still unwise for investors to hold large cash reserves. This, of course, supports the stock markets.
Second, global growth is still robust, regardless of a slowdown in major economies such as the U.S. and China. Moreover, the Federal Reserve has indicated that 2019’s scheduled interest rate rises could be postponed should economic data wane. Therefore, if the Fed does decide to delay hiking rates, this will help to bolster the U.S. and, as such, global economy.
Third, the global financial system is now in an improved condition. Over the past 10 years banks and other financial institutions have substantially increased their capital levels, thereby making them better-placed to be able to weather loan defaults.
Although these tailwinds can be predicted to enhance investor outcomes this year, there are also factors that could do the opposite.
The principal headwinds that could adversely affect investor returns include the continuing trade dispute between the U.S. and China; higher Treasury yields, which could increase the risk-free rate of capital; elevated inflation; and Brexit-fuelled uncertainty.
We’ve seen over the years that stock markets go up over the longer-term, therefore I would strongly advise investors to stay invested. Of course, nobody wants to miss out on returns.
However, I would urge investors to make sure their portfolios are sufficiently diversified across sectors, geographical regions, asset classes and currencies. This is the time-honoured way to sidestep risk and make the most of the inevitable opportunities.