Investment Outlook (Q1/2019)

The Investment Outlook for the first quarter of 2019 has been published.
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“In a chronically leaking boat, energy devoted to changing vessels is more productive than energy devoted to patching leaks.”

Warren Buffett

Macro Environment

  • Inflation pressure in developed markets is subsiding
  • European growth loses momentum
  • US consumer confidence remain intact while capital markets become more fragile
  • Emerging markets growth remains robust while confidence numbers are falling

Outlook and Markets

  • Despite recent corrections, valuations remain stretched in a lot of markets
  • Trade frictions between the US and China increase and threaten to escalate further
  • Fed still on track to tighten further but might be forced to change stance due to trade frictions and the economic cycle turning

Main Investment Calls

  • Remain cautious and move to a small overweight in the income portion of the model portfolio
  • Maintain an overweight in Cash
  • Equities over Sovereign Bonds
  • Emerging over Developed Equities
  • EMD and Investment Grade Credit over Sovereign Bonds
  • TIPS as an (unexpected) inflation hedge

Main Risks

  • Full scale trade war between the US and China escalating further also on a political level
  • Higher than expected inflation in the US, coupled with substantially increased spending leads to more than the expected rate hikes by the Fed and choke off economic momentum, leading to a possible recession
  • Unexpected fallout from a chaotic Brexit could lead to another Euro crisis and put global growth at risk
  • Risks of policy missteps as China continues the attempt to rebalance its economy to a more domestically supported one and impose too strict regulatory frameworks on banks

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