Finding Value as the Momentum Fades
As increasing macroeconomic and geopolitical risks lead to rising volatility, where do we see the main opportunities and challenges for credit markets in 2019?
- As 2018 draws to a close we are now in a very different position from a macroeconomic perspective than we were 12 months ago: a number of issues are acting as a drag on 2019 growth forecasts while central banks are moving further towards monetary policy normalisation
- The significant fourth quarter sell-off has changed the return expectations for 2019 and, in our view, we could see a shift further away from momentum trades towards value/income trades, given the more attractive valuations
- We believe that the mix of more attractive valuations in credit markets, combined with a ‘Goldilocks’ scenario (i.e. not too hot or too cold) for the global economy in 2019 could reinvigorate institutional and retail demand for credit, particularly in high yield
- However, for such interest to manifest itself into significant inflows, we believe the current macroeconomic uncertainties have to dissipate, namely trade wars and the inflection point in US monetary policy tightening
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