Finding Value as the Momentum Fades – December 2018

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?

Key Findings

  • 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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