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Ready to catch growth tailwinds

A disappointing December for financial markets capped off a challenging 2018.
We are optimistic that risk assets will find their footing in coming months.


In December, financial markets were once again stuck in reverse as concerns about slower economic growth scared off investors. We saw this pattern throughout the year as fears overshadowed opportunities. In the end, 2018 proved to be a record year – but not in a good way: more than 90% of asset classes (in USD) generated negative returns in 2018; and December returns for the US benchmark S&P 500 Index were the worst in nearly 90 years.

Markets lose their way

This outcome was not what we had anticipated at the start of 2018 when we believed that risk assets would do well in light of the strong global economy. But concerns about tightening monetary policy and the evolving US-China trade war, among other factors, set financial markets on a different course. In our mandates, we responded with measures aimed at increasing stability and reducing risk.

Dead end

In December, our multi-asset class mandates broadly recorded a negative absolute performance in CHF, USD, EUR and GBP-referenced portfolios. Our fixed-income strategies fared best, while equities had a more challenging month, with US and Japanese markets hardest hit by December’s sell-off. Equities in emerging markets (EM), in contrast, recorded smaller declines. Within fixed income, bond prices benefited from the decreasing and flattening of yield curves.

Time for a restart

Going into 2019, we are optimistic that risk assets will find their footing in coming months – the year got off to a good start. While global economic growth is expected to slow from 2018 levels, the risk of recession still appears unlikely, in our view. We continue to believe that the most effective way to protect investments from short-term disturbances is to stay invested in a well-diversified multi-asset class mandate.

In line with the AAUC House View, we continue to keep a small overweight position in global equities in our mandates, including EM as we believe they currently have the largest relative performance potential given their low valuations. In fixed income, we are slightly underweight in absolute terms. We have a neutral duration stance in US and UK government bonds, and have recently increased our short duration view in EUR, CHF and JPY government bonds to neutral as well given the slowing, we have increased our holding in investment-grade bonds to neutral. Our preferred fixed-income segments are EM local and hard currency bonds.

S&P 500 Index returns since 1946: Top 5 December declines/gains

Important Information:

This part of the material: (i) aims to provide macro-market commentary; (ii) does not contain any statements or advice in relation to any specific marketable security or financial product; and (iii) does not take into account your personal circumstances and should not be treated as any form of regulated financial advice, legal, tax or other regulated service.