ABN AMRO expects equity returns to be lower in 2019

Press release -

ABN AMRO Private Banking continues to prefer equities over bonds. Although it expects equities to notch up positive returns in 2019, ABN AMRO believes these returns will be lower than those typically recorded in previous years. In its 2019 Investment Outlook, ABN AMRO Private Banking points to forecasts of reduced economic growth as the expected cause of lower corporate earnings, although slower but sustained growth continues to underpin its preference for equities over bonds. It recommends keeping a close eye on economic developments in 2019 and adjusting investment portfolios for any expected change in circumstances.

Richard de Groot, Global Head Investment Centre, ABN AMRO, comments: “A potential slowdown in the second half of 2019 – specifically in the United States – causes us some concern about corporate profitability, and the market consensus of a 10% uptick in corporate earnings may well prove too bullish. Given the many varied and increasing risks, market volatility is likely to be higher than in previous years and this is likely to play havoc with the markets throughout 2019. In addition, European bond investors are looking at yields in the low single digits.”

Preferring the USA

ABN AMRO predicts widely diverging returns between sectors and companies, making stock selection and diversification key drivers for performance in 2019. In terms of regions, it prefers the United States over Europe, whereas it is neutral on emerging markets. At sector level, it prefers some cyclical sectors that typically do well in times of economic growth, and is optimistic about industrials and energy. Its view of technology remains neutral despite the sector’s strong revenues and earnings growth as these stocks command steep valuations. ABN AMRO considers communication services and utilities unattractive, as it does large parts of the consumer goods sector. Stock market performances of companies in these sectors typically lag behind in times of rising interest rates.

Opportunities

ABN AMRO Private Banking sees opportunities for investments in emerging market bonds. This category had a bumpy ride in 2018 but the situation is looking up. By investing in emerging market bonds in both ‘hard’ and local currencies, investors may lock in higher returns. That said, ABN AMRO would advise investors to keep only minor positions in local currencies, in view of the higher risks. It also reckons a position in commodities is justified, while it takes a neutral view of real estate. Lastly, it recommends that investors consider companies that lead their sector in terms of sustainable business activities and/or are innovating in order to achieve sustainability targets.

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