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Expect Rising Interest Rates, Trade Uncertainties and Slow Recoveries to Dominate 2019

Based on the prognostications of global financial industry insiders across the globe, the investment climate for 2019 will be affected by three primary conditions. They include: rising interest rates in key markets, uncertainties surrounding the US-China trade war, and slow emerging market recoveries.

Interest Rate Hikes

At this writing, it is expected that the U.S. Federal Reserve will increase interest rates three times over the next year. The U.S. is not alone on an interest rate hike. Also projected are 2019 interest rate increases by the Bank of Canada, the European Central Bank, the Bank of England and the Reserve Bank of Australia. These rate hikes will occur within a climate of relatively contained inflation and retreating global liquidity.

Trade Uncertainties

It is yet to be seen just how significant the U.S.-China trade dispute and new tariffs on Chinese imports will be; not just on importing and manufacturing, but investing and other economic opportunities. The trade dispute is just the tip of the iceberg when it comes to a broader perspective that China’s policies are skewed to favor the Chinese and no one else. With the Chinese economy growing, the looming Made in China 2025 initiative, and the clear indication that China is becoming a formidable economic power (especially evident in key sectors like technology), there is little doubt that a trade war will affect investments.

 

The International Monetary Fund (IMF) Direction of Trade Statistics estimated the value of products made and sold in China by American companies in 2017 to be $250 billion. This is approximately twice that of U.S. exports to China. The consumer market in China is said to be growing at an annual rate of 14% compared to the U.S. market’s 3.5% rate. These factors combined will influence investment decisions, and attention to these factors are likely to contribute to China’s growth rate, which is slowing and projected to slow down to around 6% next year.

Turmoil and Slow Recoveries Elsewhere

From Brazil and Argentina, to Russia and Turkey, nations across the world are still reeling from fiscal difficulties. The political upheaval over lacking reforms in Brazil earlier this year set that country’s economic recovery on an uphill battle. In 2019, investors will be cautious as Brazil makes essential improvements. Not far away in South America, a key trading partner of Brazil’s, Argentina, is still grappling with its President Macri’s economic reforms and not experiencing any real growth; a pattern expected to continue. While Turkey’s economy is expected to grow approximately 4% next year, its investment climate will be negatively influenced by the country’s geopolitical risk and broad concern over its deteriorating rule of law and related security risks.

Bright Spots

On a more positive note, Goldman Sachs is predicting South Africa’s economy to grow 3% boosted by its President Cyril Ramaphosa’s reform policies. This growth and the absence of any other negative factors as in the case of Turkey will render a much better investment climate forecast. Another bright spot is India with its economy projected in the IMF Economic Outlook report to grow at an annual rate of 7.8% in 2019. Contributing factors were India’s “strong private consumption,” “fading transitory effects of the currency exchange initiative,” and the “implementation of the national goods and services tax;” all investment incentives.

 

If you read the financial press, you will see many conflicting headlines. Some will note a 2019 bear market, while some leading banks are reporting bullish 2019 stock market targets. Some financial observers are touting opportunities in bonds and Asian shares, while others are noting opportunities in emerging-market denominated bonds. Regardless of the across-the-board projections, sound portfolio strategies will remain the way to lure new investors and retain current investors’ interest and participation in the markets.

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