Investment Themes in 2019
A Progress Report
Our Investment Themes report in 2018 was titled ‘How Much Longer Can the Cycle Run?’ and with the full year behind us, we are none the wiser. Last year we suspected upside risk to global growth was limited and that expansion may peak in 2018 and noted that we were moving into an increasingly mature phase of the business cycle. At the end of 2018, what we do know is that there is a widening divergence of views on the prospect of the coming year. Our global economics team writes that real economy data on labor market conditions remain robust as a foundation for investment, growth, and inflation. But financial market turbulence suggests deteriorating economic conditions going forward.
Trade tensions between the U.S. and China has thrown a big wrench into global growth plans, increasing uncertainty across markets and stoking fears of a slowdown in global growth. Our commodities team asks us to ‘Call them in March’ as rarely in history have so many factors for the period ahead depended so significantly on the binary outcome of unfolding events. By the end of the first quarter we should hopefully see a resolution of trade talks between the U. S. and China, whether the U.S. Fed is on a slower path to tightening, the fate of Brexit, politics and policies on Francs, and U.S. sanctions on Iran and Russia. The outlook for Emerging Markets is in limbo as investors wait to see if China will be a help of a hindrance to the region. Given the volatility in markets in 2018, we again have included and updated our Bear Market Checklist that gives us indications of when the next bear market may have begun. The good news is that our analysis shows it’s still too early to make that call. To that end, we believe Frontier Markets are poised to do well as the economic growth outlook looks reasonably solid in contrast to emerging markets.
Although coral has been declared the fashion color of 2019, in terms of what we see from as an overarching theme, the color for 2019 is green. China has made decided steps towards being more environmental friendly and it’s crackdown on pollution is driving a structural upgrade and consolidation of industrial commodity producing sectors. Investors are becoming more interested in ‘green’ investing with large increases of assets under management in ESG-related funds. We look at the top sustainability topics in the technology sector and whether there is a combination where the growth aspects embedded in technology firms can combine with the merits of ethical investing.
Smart cities are a focus and we take a look at the driver of smart cities — the Internet-of-Things — and how IoT will help make life better for residents by helping connected networks be more efficient and empowered through the use of data. Finally, we take a deep dive into the subscriber video on demand market and ask whether there are subscribers out there for a new SVOD service to attract. We are pleased to present our investment themes for 2019, and we wish all readers of our Citi GPS series successful investing in the year ahead.
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