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#Market Strategy — 31.01.2019

Investment Outlook 2019 [VIDEO]

Prashant Bhayani

INVESTMENT OUTLOOK 2019

VIDEO TRANSCRIPT

When we formulated our global economic outlook 2019, we believed that the world is in a synchronized slowdown. However, we believe the world is also late cycle but it's not the end of the cycle, that is the key takeaway.

That guided how we selected our investment themes for 2019. We wanted to assist investors with higher volatility that comes with later cycle investing. That means defensive ideas across asset classes.

We also wanted to focus on the longer term themes in Asia and emerging markets as well as multi-year mega-trends that can be taken advantage of through higher volatility as the year goes along.

DEFENSIVE THEMES

Let's first explore defensive investments. That's the category of our first two themes. Namely, number one, we're looking for yield and for the first time for dollar-based investors, due to the increase in interest rates over the last few years, you have opportunities in high quality corporate bonds.

Secondly, in the equity space, we focus on dividend yields which now are attractive especially in Europe and Asia, in many cases at four percent or above. However, at this point of the cycle we also need to focus on other asset classes, diversifiers, namely gold.

Gold is a recession hedge, it's a portfolio hedge. Also, we prefer macro hedge funds in this environment. Why? There are trends in interest rates and currencies for managers to exploit as well as these charities generally have a low correlation with public market returns.

Finally, we also prefer direct, private real estate investment. With inflation picking up, interest rates picking up, that flows through to rental income.

ASIA / EMERGING MARKET THEMES

We're optimistic on several Asia multi-year investment themes in 2019, namely a monumental one, the opening up of China's capital markets. For example, China's 15% of the world economy but it's only four percent of equity in the seas globally.

We're also going to see the bond industries develop, an increased use of the Chinese currency as North-South trade expands within Asia and globally.

We also believe the dollar is peaking in 2019 and that gives you opportunities in merging market local currency bonds as well as Asian currencies.

MEGA TRENDS THEMES

The next group of our themes are important because they're long term, multi-year mega-trend investments. The first one, mobility. It's not just about autonomous vehicles, it's about the data that drives those vehicles, the technology, the commodities that go into the battery of electric vehicles. It's the entire supply chain which we're focused on.

Also, cyber security. This is mission-critical spending for company CEOs. Up to $100 billion of additional spend by 2020. Finally, we're firm believes in urban transformation. What does that mean? Smart cities, better water and waste management, recycling of plastics.

One of the most powerful drivers of longer term mega trends is demographics. We know the population is aging. In fact, the average lifespan will increase by seven years between now and 2050.

But more importantly, the composition of retiree spending is changing. We never retire with this much wealth and they're spending increasingly on travel and experiences, health care, healthy eating, and fitness. Finally, the fourth, industrial revolution which is a technology revolution is Industry 4.0.

Artificial intelligence, robotics, big data, cloud computing, these will explode in terms of usage and in terms of demand for the next decade. All these represent compelling investment opportunities in the coming years.