Another factor that increases the volatility in the markets can be a growth yield of US government bonds caused by the tightening of monetary policy by the fed and the deficit US Federal budget due to the tax reform trump. Since U.S. government bonds are financial assets with a historically low-risk growth of their yield can cause the outflow of capital from the stock market in General and emerging markets in particular.
Another question is thathow effective this policy as a tool for reducing the trade deficit. As you know, the countries – trading partners of the United States in response to American restrictions introduced its limitations, and this affects the volume of American exports. In addition, to reduce deficits in trade and current account prevents the low savings rate in the United States and the recent tax reform of trump, which led to a significant increase in the budget deficit. The latter, ceteris paribus, also leads to an increase in the current account deficit of the balance of payments.
Thus, if to take into account the difficulties faced by the administration of trump, it can be concluded that in 2019 the attempts of the American administration to reduce trade deficits will continue. But financial markets will obviously also unstable and will continue to monitor closely the negotiations between the United States and their trading partners.
Where to invest
The above mentioned negative net investasinya under other equal conditions to stimulate long-term depreciation of the U.S. dollar against other currencies. So in the end, Citi analysts predict that the dollar index DXY will fall from the current values in the district 97 points to 94 points by the beginning of 2019, and by the end of 2023, he can go down to 76 points (which is equivalent to a decrease of 20% relative to current levels).
Long-term weakening of the U.S. dollar, even if the growth yield of us government bonds, may interfere with the first effective working mechanism when raising interest rates in the U.S. led to capital outflows from emerging markets in favor of the United States. In the light of such circumstances, Citi analysts believe that in 2019, may become an interesting object for investment in emerging markets.
Emerging market equities now trade at a discount of about 20% global market share (in the ratio price/earnings), and expected in 2019, the growth rate of corporate profits are likely to exceed the average for the world. Especially interesting is the Chinese stocks, as they fell markedly in 2018 due to the protectionist policies of trump, while the growth rate of China’s economy, is expected in 2019 will be 6.4%.
Fairly positive look and shares of companies in continental Europe. These securities are traded at a discount of about 7% to global equities and 20% to the US equity market (ratio price/earnings). The growth rate of corporate profits here in 2019, is likely to exceed the global average.
On the market British stock analysts maintained neutral recommendation. On the one hand, the low rate of the pound sterling, supports the export earnings of British companies, but on the other hand, uncertainty about Brekzita increases the political risks for the economy of the United Kingdom. Neutral recommendation analysts also support the U.S. stock market, which is associated mainly with a relatively high value coefficients according to the securities and the exhaustion of the positive effect of tax reforms trump.
Global bond markets the main factor that you will need to take into account is the trend towards higher interest rates in developed countries, which, ceteris paribus, leads to lower prices of bonds in currencies of developed countries. In this context, Citi analysts think it is possible to apply to bonds in the currencies of developing countries. In particular, interesting is the Chinese government bonds, especially in light of the opening of Chinese bond market to foreign investors. As for bonds in the currencies of developed countries, look to American corporate investment grade bonds (yield of about 4% per annum), as well as high-yield bonds (yield about 6%).
Whatever assets are not chosen by the investor, the main rule should be to maintain vysokomineralizovannoj asset portfolio, assembled on the basis of an adequate assessment of the situation in the global economy, politics and financial markets. And no matter how attractive certain assets that only this strategy will minimize the risks and losses in case of adverse developments in the markets and will provide high profitability of investments in all other cases.