IN­VEST­ING

THE BIG QUES­TIONS FOR 2019

Money Magazine Australia - - CONTENTS - Alex Joiner Chief economist at IFM In­vestors

Q WHAT WILL BE THE STAND­OUT SEC­TORS AND WHAT IS­SUES DO IN­VESTORS NEED TO WATCH OUT FOR?

Un­cer­tainty is ris­ing as the global eco­nomic and in­vest­ment land­scape be­come more chal­leng­ing. The out­look for the global econ­omy is be­com­ing in­creas­ingly clouded. Con­se­quently, in­vestors should be pre­pared for po­ten­tially lower re­turns and higher volatil­ity in eq­uity mar­kets and di­ver­sify ac­cord­ingly.

We would ex­pect global growth to be­come in­creas­ingly de-syn­chro­nised as ef­forts by cen­tral banks to re­move stim­u­lus con­tinue and geopo­lit­i­cal con­cerns start to weigh. The US econ­omy will re­main a stand­out, fu­elled by less-than-ap­pro­pri­ate fis­cal stim­u­lus. But as stim­u­lus wanes and the im­pact of mon­e­tary pol­icy tight­en­ing is felt, a de­cel­er­a­tion in growth is ex­pected.

The Euro zone is de­cel­er­at­ing, with an over-re­liance on Ger­man growth and in­sta­bil­ity in Italy key con­cerns. Ja­pan’s econ­omy will re­main re­liant on hugely ac­com­moda­tive pol­icy for even mod­est growth. The UK is be­set by prob­lems of its own mak­ing as Brexit ne­go­ti­a­tions grind on.

Emerg­ing mar­ket economies have fallen out of favour as they strug­gle un­der the weight of tighter US dol­lar fi­nan­cial con­di­tions. And it re­mains to be seen if China can re-stim­u­late growth that had de­cel­er­ated as au­thor­i­ties sought to de-lever the econ­omy as it be­comes in­creas­ingly chal­lenged by US trade pol­icy.

With all these dy­nam­ics at play we’d ex­pect in­vestors to con­tinue to de-risk their port­fo­lios, from growth strate­gies lever­ag­ing global ex­pan­sion to those more bal­anced by de­fen­sive as­sets, par­tic­u­larly fixed in­come. We’d also high­light the im­por­tance of broader di­ver­si­fi­ca­tion in such an en­vi­ron­ment, with in­fra­struc­ture play­ing a role in a de-risked port­fo­lio (par­tic­u­larly via su­per).

In Aus­tralia the key ques­tion will be whether the Re­serve Bank will raise its in­ter­est rate. It will all de­pend on wages and the house­hold in­come growth needed to un­der­pin not only the out­look for in­fla­tion but con­sumer spend­ing and the prop­erty mar­ket.

In­deed, on the lat­ter the bank has never started a pol­icy tight­en­ing cy­cle while me­dian prices have been in out­right de­cline, nor has the house­hold sec­tor ever held as much debt. The risk is that ris­ing in­ter­est rates will push sec­tors lever­aged to the res­i­den­tial cy­cle into a down trend and main­tain pres­sure on dis­cre­tionary re­tail spend­ing. In­fra­struc­ture spend­ing should con­tinue to sup­port the con­struc­tion sec­tor nar­ra­tive where res­i­den­tial leaves off.

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