Finding refuge in challenging markets
AROUND THE TABLE | SEPTEMBER 2019
From trade disputes and tensions in Hong Kong to ongoing oil issues, geo-political risks are creating a challenging environment for investors. At Crestone’s most recent investment forum, we asked panellists to discuss if the unfolding central bank stimulus would stabilise global growth as we enter 2020 - or if the recent re-escalation in the trade dispute, and resulting global capex uncertainty, had already set in train a near-term recession.
- A healthy global backdrop, but with rising geo-political risk - The longevity of the cycle has been unique, yet corporates and consumers are in a favourable position. US-China trade negotiations are seen as critical to the near-term outlook. While the pessimism in bond markets might not be right, central banks seem attuned to the risks and able to support the outlook.
- Opportunities still exist in equities, but mitigating risks is key - Valuations are viewed as concerning, given a potentially poorer earnings outlook, as well as rising regulatory risks for some growth sectors. An ongoing low rate environment is expected to be both problematic for financials and a key risk if interest rates rise. A cautious approach to building strategic positions in emerging markets is seen as warranted at this stage of the cycle.
- Australia is in a good position to weather a global downturn - A number of headwinds, such as the housing correction, are seen to have passed. With recent stimulus, a pick-up in growth in the year ahead is deemed a reasonable expectation, supported by public sector infrastructure spending, exports and business activity. A key risk to the outlook is the lack of consumer income growth. In addition to Australia’s relatively defensive equity market, opportunities further out the credit curve are viewed favourably.
- Investing in bonds and credit requires a nimble and tactical approach - While the path of least resistance for yields is lower, a case was made for buying any decent up-lifts in yield, even a 50 basis points rise. It was argued that investors simply do not have enough duration in their portfolios for this type of environment, with a structurally lower level of interest rates in Australia and globally likely to be in play for some time.