Mature cycle and heightened volatility call for defensive
equities and high-quality credit
State Street Global Advisors, the asset management arm of State
Street Corporation (NYSE: STT), today released its Global Market
Outlook for 2019 – Not Over Until It’s Over. While mindful of the
risks to the longest bull equity market in history, State Street
Global Advisors believes US equities will still benefit from the
last vestiges of fiscal stimulus and strong consumer spending in
the first part of 2019. But opportunities are likely to shift to
other regions and sectors in the second half of the year, depending
on how policy tightening, trade disputes and geopolitical events
play out in emerging markets and Europe.
Given the maturity of the current cycle, State Street Global
Advisors expects to see bumpier markets in 2019. Therefore the firm
suggests a more cautious return-seeking approach, with a diverse
combination of defensive equities, high-quality credit and select
emerging market exposures across equities, currencies and local
currency bonds.
Geopolitical risks in Europe look set to weigh on stocks,
especially in the UK as its departure date from the European Union
draws closer. Political concerns will likely impact the euro and
sterling, amid EU budget disputes with Italy and continued Brexit
uncertainty.
The firm believes the guilt-by-association sell-off in emerging
markets in 2018 has created some attractive buying opportunities,
provided not all the risks already priced-in materialize in 2019.
The country to watch will be China, which must balance continued
economic growth with its growing debt burden and damage from US
tariffs.
“China matters most among emerging markets for global investors
in 2019,” said Rick Lacaille, global chief investment officer for
State Street Global Advisors. “Not only is it an important driver
of global growth, it is also increasingly important to global
markets as major emerging market equity and debt indices begin to
include onshore Chinese securities. Moreover, markets are only
beginning to digest what a fundamental shift in relations between
the US and China might mean for future growth.”
For fixed income investors, caution and quality are the
watchwords for 2019 as the US Fed continues to raise rates and
drain liquidity as it unwinds its balance sheet. Credit, therefore,
warrants caution at this late point in the cycle, and the firm
continues to focus on higher-quality issuers. For fixed income
investors looking to take risk, State Street Global Advisors sees
value opportunities in local currency emerging market debt and
currencies. Lastly, with US short-term rates moving higher,
cash-like holdings appear more attractive than they have in years,
and there should be opportunities to use short-term currency moves
to make long-term strategic hedging decisions.
“Given we expect higher volatility in 2019, investors may want
to increase their dry powder,” said Lori Heinel, deputy global CIO
for State Street Global Advisors. “While the current cycle isn’t
over until it’s over, building in strong defenses now should help
navigate late-cycle volatility and uncertainty in the months to
come.”
To view the full Global Market Outlook, click here.
About State Street Global Advisors
For four decades, State Street Global Advisors has served the
world’s governments, institutions and financial advisors. With a
rigorous, risk-aware approach built on research, analysis and
market-tested experience, we build from a breadth of active and
index strategies to create cost-effective solutions. As stewards,
we help portfolio companies see that what is fair for people and
sustainable for the planet can deliver long-term performance. And,
as pioneers in index, ETF, and ESG investing, we are always
inventing new ways to invest. As a result, we have become the
world’s third largest asset manager with nearly US $2.81 trillion*
under our care.
* This figure is presented as of September 30, 2018 and includes
approximately $28 billion of assets with respect to SPDR products
for which State Street Global Advisors Funds Distributors, LLC
(SSGA FD) acts solely as the marketing agent. SSGA FD and State
Street Global Advisors are affiliated.
Important Information:
Investing involves risk including the risk of loss of
principal.
The whole or any part of this work may not be reproduced, copied
or transmitted or any of its contents disclosed to third parties
without SSGA's express written consent.
The information provided does not constitute investment advice
as such term is defined under the Markets in Financial Instruments
Directive (2004/39/EC) or applicable Swiss regulation and it should
not be relied on as such. It should not be considered a
solicitation to buy or an offer to sell any investment. It does not
take into account any investor’s or potential investor’s particular
investment objectives, strategies, tax status, risk appetite or
investment horizon. If you require investment advice you should
consult your tax and financial or other professional advisor. All
material has been obtained from sources believed to be reliable.
There is no representation or warranty as to the accuracy of the
information and State Street shall have no liability for decisions
based on such information.
Investments in small-sized companies may involve greater risks
than in those of larger, better known companies.
Investments in mid-sized companies may involve greater risks
than in those of larger, better known companies, but may be less
volatile than investments in smaller companies.
Investing in foreign domiciled securities may involve risk of
capital loss from unfavorable fluctuation in currency values,
withholding taxes, from differences in generally accepted
accounting principles or from economic or political instability in
other nations.
Equity securities may fluctuate in value in response to the
activities of individual companies and general market and economic
conditions.
Bonds generally present less short-term risk and volatility than
stocks, but contain interest rate risk (as interest rates raise,
bond prices usually fall); issuer default risk; issuer credit risk;
liquidity risk; and inflation risk. These effects are usually
pronounced for longer-term securities. Any fixed income security
sold or redeemed prior to maturity may be subject to a substantial
gain or loss.
The views expressed in this material are the views of Rick
Lacaille and Lori Heinel through the period ended 11/27/2018 and
are subject to change based on market and other conditions. This
document contains certain statements that may be deemed
forward-looking statements. Please note that any such statements
are not guarantees of any future performance and actual results or
developments may differ materially from those projected.
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as a ‘Marketing Communication’ in accordance with the Markets in
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regulation. This means that this marketing communication (a) has
not been prepared in accordance with legal requirements designed to
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to any prohibition on dealing ahead of the dissemination of
investment research.
Expiration Date: 11/30/2019
Tracking no: 2326812.1.1.GBL.PR
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