ON BEING CAUTIOUS ABOUT THE NEW YEAR
THIS YEAR BROUGHT BACK MEMORIES OF Will Ferrel’s Saturday Night Live impersonation of President George W Bush, when he famously (and hilariously) termed ‘the economy’ one among the number of the Axis of Evil. What began as a promising year (according to some) quickly turned into one that continued to leave a sour taste as it limped toward the finish line.
It was most evident when speaking with Marriott’s Arne Sorenson about the global economy. In the third quarter of the year, Sorenson was generally confident that US fundamental indicators showed strength, and that while the rest of the world looked shakier, that pockets of growth in emerging markets were still to be found.
Just a few weeks later, the hospitality giant found itself contending with the second largest data breach in history. Meanwhile, as 10 year US bond yields crossed lower than those on two-year treasuries, panic driven investors abandoned any attempt to mimic the confidence the world’s biggest hospitality CEO had earlier dared; in December, they plunged the S&P 500 into bear territory, and wiped a whole year’s worth of gains off the Dow Jones Industrial Average.
When writing this, late in December, US stocks had recovered to post their largest single day rally in history. But does that mean the market was oversold? Or will stocks in 2019 echo oil’s fortunes in 2018? Because at one point speculation raged if a steadily climbing crude would once again cross $100 for the first time in half a decade. Mere weeks later, it was languishing below $50, threatening any revenue windfall Middle East exporters were hoping for.
Some emerging markets show signs of promise. 2017’s best, and 2018’s worst performer, Pakistan could present a fundamentally stronger case to reserve more funds for emerging market investments if it can solve its financing woes. Deferred payment agreements and resuscitation efforts by Saudi Arabia and UAE seem to have stymied its current account deficit. Unfortunately, it’s currency, like those in Turkey, India, and others has taken a battering, and could continue to do so if the dollar grows stronger.
Emerging markets overall brought pain for investors in 2018. But while Bloomberg analysts say they’ll bring more heartache in 2019, CNBC begs to differ, saying the reformists they’ve elected could spark a revival. What is for certain, however, is that if a bear market were to rage on for longer, and a recession in either of the two world’s largest economies were to result as of a trade war truce falling through, 2019 won’t bring cheer to anyone.