Where to put one’s money in 2019? That is the difficult question every investor must face at the moment. For a long time “TINA”, or “there is no alternative”, was the mantra which kept guiding capital into stocks alongside miniscule yields. Now with rates and yields rising and stocks having seen big losses, where should investors turn? The reality is that bonds seem likely to outperform stocks next year, at least according to JP Morgan. The bank thinks EM debt is likely to have a good year as once the Fed stops tightening the Dollar will likely weaken, giving a boost to EM assets.
FINSUM: In our view, a lot of damage has already been done to stocks and there are now some very interesting buys. Furthermore, short-term debt has seen yields rise high enough that you can get decent returns without a lot of interest rate risk.
Goldman Sachs has been sending some seriously mixed messages on stocks. Just a few days ago they published a bearish outlook for 2019. Now the bank’s investment management arm is taking the opposite stance, saying that equities are the place to be. Goldman thinks global growth will continue nicely in 2019, giving support to stocks. It does, however, favor emerging markets over developed equities. The bank still thinks US stocks look attractive after the recent selloff, however.
FINSUM: To be honest it annoys us when one institution puts out some many competing views, but then again, each of the divisions has its own interests. We are not as bullish on stocks as Goldman money management arm.
Alongside the renewed fall in equities, EMs and especially EM currencies have been taking it on the chin. With western markets seizing up and oil prices tumbling it is a double whammy for emerging markets. EMs are hurt by declines in oil, but are doubly wounded by the risk-off mood that is pervading markets. Treasuries have seen big yield declines as investors flooded in, and that has meant outflows from EMs, which have seen their currencies drop considerably. The Rand and Lira have been hurt most.
FINSUM: This ship probably won’t be righted until western markets exercise their demons.
Emerging markets have had a rough year, with a bear market taking hold. An “all clear” or false bottom has been called a number of times, which means investors need to be very wary of piling in. That said, an interesting signal is showing that emerging markets may be in for a turnaround. London-based Ashmore plc is a major asset manager focused on emerging markets, managing $76 bn in the asset class. Their shares are a bellwether for where EM assets may be headed. And lately, Ashmore has been doing very well. The shares are still down for the year, but rose for eight straight days through Wednesday, their longest winning streak since February.
FINSUM: This could be a sign that the tide is turning. As further evidence, the gains seen in Ashmore shares were not experienced by other asset managers, showing there is a clear differentiation.
The big crash in oil has a lot of investors worried. Generally speaking, falling oil prices are seen as a bad sign, as they tend to forecast a weakening economy. However, this time around, there is a big beneficiary—emerging markets. The large majority of EMs are oil importers, which mean they benefit from weakening prices. Accordingly, countries like India and the Philippines are seeing benefits to their currencies, and likely, their economies. Indonesia and Turkey are also big oil importers.
FINSUM: This is more of a silver lining to a negative than a positive development in itself.