• Home
  • About
  • Subscribe
  • LATIF
  • Conferences
  • Dashboard
  • Edit My Profile
  • Log In
  • Logout
  • Register
  • Edit this post

Room 151

  • 151 BRIEF

    What's New?

  • Slough welcomes commitment that Office for Local Government ‘will not be a burden’

    June 30, 2022

  • Homes England agrees strategic partnership with two authorities

    June 29, 2022

  • Soaring inflation and pay pressures to add £3.6bn to council budgets

    June 28, 2022

  • Underfunded social care reforms could ‘exacerbate workforce pressures’

    June 27, 2022

  • Nottingham City Council leader labels proposed intervention as ‘disappointing’

    June 27, 2022

  • Government preparing to intervene in Nottingham City Council

    June 23, 2022

  • Treasury
  • Technical
  • Funding
  • Resources
  • LGPS
  • Development
  • 151 News
  • Blogs
    • David Green
    • Agent 151
    • Dan Bates
    • Richard Harbord
    • Stephen Sheen
    • James Bevan
    • Steve Bishop
    • Cllr John Clancy
    • David Crum
    • Graham Liddell
    • Ian O’Donnell
    • Jackie Shute
  • Interviews
  • Briefs

Looking ahead: Investment market prospects for 2019

0
  • by James Bevan
  • in Blogs · James Bevan · LGPS · Resources · Treasury
  • — 21 Jan, 2019

    Investors should steel themselves for a potentially bumpy ride in 2019, says James Bevan.

    2018 was a challenging year for the global economy with slowing growth, tightening financial conditions and political developments that offered only uncertainty.

    In the near term, the global economy looks likely to slow further.

    But recently, markets appear to be entertaining the idea that policy could turn things around, and in seeking to understand whether the rally is for real, we see three policy areas that could affect the global economy in 2019 – the US, China, and Europe.

    US growth has been reliable if not exciting in recent years, after the benefits of Mr Trump’s tax cuts and Jobs Act and the cross-party fiscal expansion.

    However, we can expect growth to slow in 2019 as the effects of the fiscal stimulus fade and the capital expenditure cycle loses momentum.

    That said, rising wage growth and lower oil prices should support consumer spending and prevent growth from slipping below trend and the Federal Reserve looks set to continue raising interest rates, but at a slower pace, in search of the so-called ‘neutral’ level.

    With China, the economy has been slowing and we can expect the slowdown to continue through the first half of the year, with weakness spreading to real estate and manufacturing investment.

    Policymakers are starting to respond with less conflicted stimulus measures than were offered last year, which should ultimately prove successful.

    The gap between policy easing and economic recovery may be risky for the yuan, but a lower currency would also help the economy.

    As for Europe, it looks set to be a “taker” of global growth, with weakness in the US and China weighing on activity.

    But, unlike China and the US, monetary policy options look limited, and with the Eurozone, the Italian budget stand-off and looming European elections mean it is unlikely that other institutions will take up the reins.

    This means we are unlikely to see counter-cyclical policies in 2019, with potential for more volatility.

    Against this backdrop, and with concerns about valuations, future growth and macro-political developments, risk asset markets suffered a pullback in the fourth quarter of 2018.

    But valuations are less rich, and whilst growth is slowing we see limited risk of an early global recession, along with some signs that the authorities are developing policies that will be positive for markets, including more accommodative commentary from the US Federal Reserve.

    As to what all this means for markets, there are some indicators that suggest that the downturn is now over, including technical signals based on moving averages, shifts in portfolio positioning, the current strength of this rally, shifting central bank rhetoric, and the non-consensus nature of this view which means that the view can become self-feeding. We would presently regard this as a low probability scenario.

    At the other end of the scale, it is possible that we are on the precipice of an ugly bear market.

    We would put a low to medium probability on this scenario, recognising that if central banks are too slow to stimulate (or are not aggressive enough) bubbles could burst.

    Cheap money has created bubbles, and its removal could be destructive – once bubbles have burst they are hard to control or offset and damage can be contagious.

    Our central scenario, is that we get a continuation of the current relief rally into late January/February, followed by a topping out or rolling over, and then weakness into March or April driven by falling liquidity, adverse fund flows and tight credit.

    That weakness may involve a retest of the S&P 500 lows or potentially plumbing new lows.

    The pattern of returns would be similar to what was experienced in 2015-16 but, consistent with our view that what the authorities do now is critical, we worry that money supply measures have become weak, with for example, global (GDP weighted) base money supply at its weakest since the global financial crisis.

    We see the way forward for investors seeking decent income flows and long-term growth and prepared to put up with a bouncy ride, as focusing on a diversified set of assets where pricing is conservative, and underlying returns relatively assured.

    If the global economy shoots up, this strategy would likely look very pedestrian, but in less clement market conditions it may shine.

    James Bevan is chief investment officer of CCLA, specialist fund manager for charities and the public sector. CCLA launched The Public Sector Deposit Fund in 2011 to meet the needs of local authorities and other public sector organisations. You can follow James on twitter @jamesbevan_ccla

    *CCLA is a supporter of Room151

    Share

    You may also like...

    • Spring Statement: local government’s levy lottery 23rd Mar, 2022
    • LGPS & COP26: The expected, the needed and the opportunities 26th Oct, 2021
    • Complexity of treasury governance challenges for members and officers 13th Sep, 2021
    • Room151 panel backs unitary councils and devolution 8th Feb, 2021

    Leave a Reply Cancel reply

    You must be logged in to post a comment.

    • 151 BRIEFS – WHAT’s NEW?

      • Homes England agrees strategic partnership with two authorities
      • Soaring inflation and pay pressures to add £3.6bn to council budgets
      • Underfunded social care reforms could ‘exacerbate workforce pressures’
      • Nottingham City Council leader labels proposed intervention as ‘disappointing’
      • Government preparing to intervene in Nottingham City Council
    • Room151’s LGPS Roundtables

      Biodiversity
      Valuations & Risk
      LGPS Women

    • Room151’s LGPS Roundtables

      Biodiversity
      LGPS Women
      Valuations & Risk
    • Latest tweets

      Room151 2 days ago

      Hillier confirmed as keynote speaker for LATIF/FDs’ Summit: Dame Meg Hillier, chair of the Public Accounts Committee, has been confirmed as a keynote speaker for Room151’s combined Local Authority Treasurers Investment Forum (LATIF) and FDs Summit. The… dlvr.it/ST70F7 pic.twitter.com/hxV676Iley

      Room151 2 days ago

      Councils’ funding at risk due to ‘undercounting’ in census data: Population estimates in London and Manchester may have been significantly underestimated in the 2021 census potentially threatening government funding for frontline services in these… dlvr.it/ST707J pic.twitter.com/VncIyaXa01

      Room151 3 days ago

      Gove at LGA: councils to receive two-year financial settlement: Michael Gove has announced that councils will receive a two-year financial settlement from next year to provide authorities with “financial certainty” and allow them to plan ahead. The… dlvr.it/ST0kSV pic.twitter.com/wxL3UM4sGO

      Room151 3 days ago

      LGPS valuations: the digital journey: Rob Bilton explains how technology is helping to deliver one of the most complex data exercises in the world of public sector pensions. The 2022 valuations for LGPS funds in[...] dlvr.it/ST0kMq pic.twitter.com/VxjSPC2Uvo

      Room151 1 week ago

      Conrad Hall: ‘more sophisticated’ regulation needed for local government: The chair of the CIPFA/LASAAC Code Board has questioned the sophistication of financial regulation in local government and the continuing focus of the Department for Levelling Up,… dlvr.it/SSnPBV pic.twitter.com/G5d7JCWF8c

      Room151 1 week ago

      Slough Council approves plans to restructure finance department: Slough Borough Council has approved plans to restructure its finance department to enhance capacity and capability and to address a “significant weakness” in the function. The local… dlvr.it/SSf8DG pic.twitter.com/l5lmyHmkBg

    • Register to become a Room151 user

    • Previous story LGPS funds to be limited to their pools by 2020
    • Next story PSAA begins as Appointing Person for public sector audits

    © Copyright 2022 Room 151. Typegrid Theme by WPBandit.

    0 shares