by John O'Sullivan
Capital Markets Editos, The Economist
1. WHERE TO INVEST IN 2019?
2018 was a pretty rotten year for stock market investors. It's been a fairly long bull market in America really since March 2009. What I mean by «bull market» is share prices have risen pretty steadily without a very big setback so share prices in America have raised a way from pretty much everywhere else — from Europe, from Japan, from emerging markets.
America has really been a place where stock market investors have wanted to be. The question is — is there gonna be true in 2019?
2. WILL AMERICA CONTINUE TO BE A GOOD INVESTMENT?
In a market that is coming pretty mature now, going into its 10th year, is it really very much upsight from US stocks any more. You might want to start looking somewhere else — looking at Europe, looking at emerging markets which haven't been rising quite as quickly and therefore they are cheap and at a better value. The other way of looking at things, let's say, if things are getting risky after a pretty awful year like 2018, I might just want to double down all the things that have done well for me so far — stick with America, stick with technology stocks — so called FAANG, that's Facebook, Apple, Amazon, Netflix and Google. These are the companies that investors think are gonna do well not just for the next few years, but for the next few decades.
The problem with that few is, it does rely on the US economy continuing to do better than economies elsewhere, Most people think next year will be a slower year for US economic growth.
3. WHAT ABOUT CHINA?
China's economy has actually been slowing down and it's not because of Donald Trump's trade war. There's also been an underlying slowdown in consumer spending in the Chinese economy. And that hasn't just affected China, That's affected all the local emerging markets in Asia. And it's also affected Europe. About the third of the profits that European listed companies make come either from China or from other emerging markets that are tied into China. So when China slows Europe slows as well.
The Chinese Government is worried about the degree at which the economy has been slowing. So they've been trying to gear up the economy a little bit by cutting taxes, by relaxing monetary policy, and by spending more on infrastructure. If that starts to percolate through into the Chinese economy next year, you can also see growth picking up in economies that rely heavily on Chinese demand in Asia, but also in Europe.
4. WHAT SHOULD YOUR BASKET LOOK LIKE FOR 2019?
Half of the investors think it's best to stick with the US market. And half of the investors think it will be better to look elsewhere for growth. We're looking forward here and we don't really know what's gonna happen in 2019. Investors always have to deal with uncertainty. What's the best way to deal with that? Well generally it makes sense to try and spread your bids widely, not to put all your eggs into one basket (as investors happen doing with the American market). Buy a basket of stocks that gives you exposure to a range of emerging markets and also a basket of stocks that gives you exposure to a lot of rich economies outside America, that's Europe, and Japan, and Australia. Spread your bets is probably the best strategy for 2019.
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