Aberdeen Standard: Prepare for More Market Shocks in 2019

Stock markets across the world will suffer volatility next year too, says Aberdeen Standard's Andrew Milligan - but that is the price you pay for investing in equities

Emma Wall 14 November, 2018 | 8:13AM
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Stock markets will see another correction of similar magnitude to those we have suffered in recent months in 2019, says Andrew Milligan, Head of Global Strategy, Aberdeen Standard Investments.

But if you want to invest in equities, that is “what you have to put up with”, he said in Asia this week.

“If you want the upside of equities, you have to weather the volatility. This has not been an unusual year – 2017 was unusual in how low volatility was. You can expect another correction in 2019,” he predicted.

Setting out the firm’s outlook for 2019, Milligan was optimistic that there would be no recession but conceded there would be a slow down in global growth in 2021 – once Donald Trump has either secured another term in the White House, or been usurped as US President.

“Trump will not allow the US economy to slow down going into an election,” he said. “We think that is therefore more likely we will see a slowdown after the 2020 race.”

Unlike some of his peers, Milligan is unfazed by the threat of inflation and higher interest rates, which would in turn mean bad news for stock market returns. He points to core inflation in the US, which remains low meaning the Federal Reserve will “remain steady” when it comes to rate decisions.

Neither is Milligan too concerned by the US China trade war, which dominates the headlines and has added volatility to Asian stock markets. He says that it is wrong for investors to get fixated on the trade war – that it is simply one of many political shifts in the background, such Italy’s threat to withdraw from the euro, or Argentina’s debt and currency concerns.

“Markets can deal with the trade war. There is $600 billion worth of trade which will be impacted by the tariffs – of a global trade market of $17 trillion. There will even be beneficiaries; Vietnam and Taiwan will step in for example,” he counters.

What are the Real Risks?

That is not to say Milligan is totally unconcerned. While he does not consider a recession imminent or the tariffs a threat to the global market, he says how China manages its debt – and currency – in the next couple of years is key.

“We have seen in the past that if the renminbi moves to fast then emerging markets will sell off,” he warned. “What happens to China is not all about Trump’s tweets, it is about how the government manages the transition to a more independent economy.”

Milligan’s colleague and head of China Equities for Aberdeen Standard, Nicholas Yeo, agreed, saying: “China is not as vulnerable to trade tariffs as it would have been in the past – it is less reliant on exports and instead is driven by the growing service sector. The long term story is positive thanks to demographics – there are 380 million millennials in China and earn more and spend more than their parents ever did.”

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Emma Wall  is former Senior International Editor for Morningstar

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