Is diversification dead? It’s a fair question. 2018 saw the vast majority of assets fall and, so far, 2019 has seen the vast majority of assets rise. To put some colour on this, Deutsche Bank analyse a broad range of risk-on and risk-off assets and in their sample (excluding currencies), 31 of the 38 assets made losses in local currency terms in 2018, while in the first half of 2019, 37 of the 38 assets made gains - silver being the only loser.
The first half of 2019 was unusual in that it was characterised by a strong rally that encompassed both risk-on and risk-off assets. However, this is very reminiscent of quantitative easing at its height, as the material driver of the cross-asset rally was central banks turning dovish in response to slowing economic growth.
A weak manufacturing survey in Germany has sharpened the focus of markets towards the extent of the global economic slowdown. German manufacturing PMI recently fell to 44.7, the second lowest level since 2009, versus an expected number of 48.
Markets have been a bit jumpy in October and, as ever, investors have looked for a suitable rationale, ranging from trade wars and slowing economic indicators, to higher interest rates.
In this case, the most likely cause was higher US interest rates, which was the reason behind the sell-off at the beginning of the year.
This is the second-longest US business cycle expansion, according to the National Bureau of Economic Research – and its data goes back to the 1850s. If there is no contraction before July 2019, it will be the longest expansion since records began.
Much has been written about the Turkish president’s authoritarian style, paranoid outbursts, attacks on the media, questioning of the independence of the central bank, going for vote-winning growth, weakening political institutions and appointing family members to government positions, but he isn’t new to controversy. And he’s not the only one. Political risk is on the rise globally.
With the world facing a mix of strong growth, rising inflation and central bank tightening, what assets should you favour?
The absence of a gain is not a loss in capital preservation, while forecasting which assets will be best for capital preservation is futile.
Anthony Rayner, manager of Miton’s multi-asset fund range, gives a run down of what to expect in 2018.