2019 may be a repeat of 2018
2018 has been a year of sharp ups and downs. “Economic slowdown, shrinking central bank balance sheets and continued bouts of volatility will make 2019 no better than 2018 for risk adjusted investment returns”. Expect better but still low returns in 2019 for multi asset global allocation portfolios wrote Goldman strategists including Christian Mueller-Glissman in a note last week. While the decline in valuations across asset classes has improved the mediumterm outlook, Goldman sees a weaker than expected macro backdrop in 2019 that will limit the return potential. J.P. Morgan, another investment banker, shares the same opinion and believes that cash is better than stocks for the first time in a decade. According to the firm, cash isn’t only a safe place to invest, but it now offers a better risk-adjusted return than equities. Although this recommendation was directed more towards US stocks, it is equally valid for Indian stock markets. This report published by the firm’s multi-asset strategy team, with $260 billion under management, upgraded its recommendation on US cash to overweight for
2019. For the first time in ten years, investors can get a lot more from safe, liquid securities than from the S&P 500 Index adjusted for volatility.
Trade war fears the world over have ignited the slowdown in earnings growth and rising macroeconomic risks. These fears will weigh on equities but sitting on cash may derisk the portfolio however boring it may appear. If J.P. Morgan turns
out right, being boring may turn out to be the key to success in 2019, just like in 2018. The fear of 2019 turning into a dampener like 2018 is reflected in the somber mood at Dalal Street despite the fall in Brent Crude prices, the strengthening Rupee and rising foreign inflows. Analysts are in no mood to enhance commitments and have downgraded nearly 300 stocks out of 407 on their radar. Political humdrums, mandir, corruption, are some of the issues that will keep the markets on tenterhooks. This assembly results may pave way for the long shot. If the BJP wins, the markets will surge but its defeat in the major states will be a great setback to the Centre and will give a sentimental push to the ‘mahagatbandhan.’
The micros of a company may give some foothold to its share price but the macros are vulnerable. The market may remain negatively skewed till the general elections next year and after smart anglers excellent opportunities to enter the market and choose stocks at bargain prices.
But if the BJP feels confident of winning the 2019 general elections after this week’s assembly results, the Lok Sabha elections may be preponed and the congress and its allies in the ‘Mahagatbandhan’ will have to devise a new strategy. Till then, let cash rule your asset allocation and liquidity be the monarch.