2019 World Market Outlook

Morningstar's Jonathan Miller talks to JPMorgan's Karen Ward about China, the Federal Reserve, world trade and the UK's prospects

Jonathan Miller 7 May, 2019 | 8:30AM
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Jonathan Miller: Hello. We are at the Morningstar Investment Conference in London, and I'm joined today by Karen Ward, Chief Market Strategist for EMEA at JPMorgan Asset Management. Karen, thank you for joining us.

So let's look at the bigger picture around the world. There is quite a lot of negative headlines out there, so when you think about that where actually are the opportunities?

Karen Ward: Well, I think as we're thinking about what caused the downturn last year and I think the big part of that was China. China slowed quite sharply last year, it was self-engineered. Beijing wanted the Chinese economy to slow, but it did turn out with the US trade hostility combined the slowdown was sharper than they had hoped. But the ripples of the Chinese slowdown were felt very broadly and particularly in Europe. So as we look forward, I think it's encouraging to see that the Chinese authorities are restimulating the economy, we're seeing the fruits of that in China itself. Not yet, in Europe, but there is at least a bit of hope that we'll see some upside coming from Beijing.

I suppose the other upside is that the central banks around the world and particularly the Federal Reserve have turned a lot more dovish recently. They are certainly suggesting they are going to be working to try and keep this recovery, keep this expansion going. So, there is some stimulus in the pipeline. The big question we've got whether the geopolitical risk, whether that's the trade hostility or Brexit and other European political issues provide too much of a headwind and that still dampens growth.

Miller: And the US seems to be at the epicentre of these trade wars, now – or the rhetoric around it. Now, what do you think about the US in that regard?

Ward: Well, with regards to the trade agenda there has been some encouraging noises about the negotiations with China, we're yet to see a deal, and how that comprehensive that deal will be. So, until we actually see that signed, I think we should remain a little nervous. There are also some questions about the US-EU trade relationship and whether the US changes its focus towards its trade relationship with the EU, particularly autos. So, that's an area of concern. But with regards to the US economy itself, generally it looks in good health, there aren't too obvious signs of excess or problems, particularly in the household sectors looking very strong indeed, very low unemployment, pretty good savings, right, it looks quite healthy. Although the economy will slow this year because the sugar-rush of the fiscal stimulus is going to fade. But our best guess is that it's slowing and not stalling.

Miller: And close to home in the UK, you know UK stock markets have lagged hugely in the last few years. Where does that leave the UK with Brexit and next steps to markets in terms of where they can go from here?

Ward: Well, the Brexit impasse is going to be very, very difficult to resolve. Ultimately it comes down to how either the conservative party or the labor party can put forward a Brexit agenda that they each agree on or whether there needs to be a general election in order to move to an outcome. I think neither are likely imminently which probably means this ongoing extension of timelines pushing that can further down the road is likely to continue. The problem for the UK is once that uncertainly lingers, it does start to do I think more damage to the economy. We're seeing businesses not invest, they are employing, but they are not investing. And therefore, I think it's going to sort of keep a lid on growth. And also because of that political risk, I think international aversion to UK assets is going to stay, even though at face value UK assets looks extremely cheap.

Miller: OK, Karen, thank you for your time. From the Morningstar Investment Conference, thank you for watching.

This article is part of Morningstar's special report on What the Experts Say

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Jonathan Miller  is Director of Manager Research, Morningstar UK

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