Market fears of recession may be overblown, with China and US stocks set for rebound in 2019, analysts say

  • Much of the bad news that rattled global markets in 2018 has already been reflected in share prices, analysts say
  • Meanwhile, Standard Chartered assigned a 30 per cent probability of a global recession in 2019
PUBLISHED : Wednesday, 19 December, 2018, 7:02am
UPDATED : Wednesday, 19 December, 2018, 11:05am

Equity markets globally are poised for a challenging year in 2019, weighed by uncertainties ranging from the US-China trade war to a growing list of gloomy economic indicators, yet it could add up to a year of opportunity for nimble investors, according to analysts.

Much of the bad news that rattled global markets has already been reflected in share prices, analysts say, noting that valuations are more reasonable, and should remain so as long as policymakers can steer the global economy around a recession.

“We believe there is a danger that investors have now become too pessimistic and that investor fears of a global recession are overdone,” said Fan Cheuk Wan, chief market strategist in Asia of HSBC Private Banking. “After a turbulent 2018, bearish expectations, lower valuations, and conservative investor positioning should help see an equity market bottom in the coming months, and a recovery later on in 2019.”

Jason Liu, vice-president and head of chief investment office in Asia at Deutsche Bank Wealth Management also said he was more optimistic than most investors.

“When we look back at four recessions in the past, the real recession typically comes 500 days after an inverted yield curve appeared, and 300 days after a peak in interest rates, which is a year and more from now,” Liu said at a media briefing last week.

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Meanwhile, Standard Chartered assigned a 30 per cent probability of a global recession in 2019.

Other analysts said US stocks should benefit from a likely pause in interest rate tightening by the US Federal Reserve, which is likely to officially go on hold during the second half of the year.

“US stocks are our top choice,” said Will Leung, head of investment strategy, wealth management of Standard Chartered Hong Kong on Tuesday.

“Company earnings will be better than what the market is expecting at the moment, which is too pessimistic due to the recent market rout. We also expect US interest rates will stop rising after one more hike this month and two more hikes in 2019.”

Still, Leung advised investors to set aside some cash to snatch up bargains in US stocks during periods of volatility.

Deutsche Bank has raised its target for the S&P 500 as of the end of September next year to 3,000 from 2,900, citing a strong economic outlook in the US. The US share benchmark closed at 2,545 in New York on Monday.

Mainland Chinese shares should also enjoy better days in the coming year, according to research outlooks by HSBC, Deutsche Bank, and Standard Chartered.

Of the major stock markets, the Shanghai Composite Index has tumbled 30 per cent since the start of the year through mid-October, to rank as the worst global performer.

Standard Chartered has ranked mainland Chinese stocks as its top pick in Asia in 2019, on the expectation Beijing will launch more policies next year to stimulate the market and counteract concerns of an deepening trade war between China and the US.

Deutsche Bank believes Chinese equities could rally about 10 per cent in 2019 thanks to infrastructure spending and improving relations on the trade front between Washington and Beijing.

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Standard Chartered said markets could react positively even in the absence of a comprehensive agreement between China and the US when the 90 day trade truce runs out in March, as long as the relationship does not show any sign of deterioration.

Meanwhile HSBC believes Indian equities will deliver the strongest earnings growth among all Asian markets in 2019.