The risks and rewards for investors in 2019

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The risks and rewards for investors in 2019

Published: Sun 30 Dec 2018, 4:23 PM

Last updated: Mon 31 Dec 2018, 7:48 AM

2019, it's just around the corner. And might prove to be a very profitable one for investors.
Indeed, there are many reasons to be cheerful for the year ahead but, as ever, there are geopolitical events and policies to watch with caution too as they could adversely impact investor returns.
What then are the risks and rewards? Let's begin with a look at what I believe could be the three main factors that will contribute to positive outcomes.
First is the steady global growth. The International Monetary Fund (IMF) forecasts world gross domestic product (GDP) at 3.7 per cent this year and next. This growth is from enhanced consumer demand, which fuels corporate sales and can be expected to create higher profits - all contributing to a healthy, active and buoyant global economy.
Second, the improvement of the world's financial system. It is, without doubt, in a considerably more robust state than it has been over the last decade. Financial institutions, including almost all major banking groups, have substantially bolstered their capital, meaning they are now in a better position to withstand issues that may arise.
And third, stock market valuations are not typically overvalued, except for a few sectors. Emerging markets, in particular, are currently offering value.
On the flip side, what are the issues that could pull down on returns? Again, in my view, there are three key things to monitor closely.
First, the Federal Reserve in the US is intending to raise interest rates. This will likely dampen US and, as a result, global growth while also strengthening the US dollar further.
Second is the trade dispute between the US and China. Although President Donald Trump appears to be adopting a more positive tone in his ongoing trade dispute with the world's second largest economy, there remain mixed signals about talks with Beijing. Should tensions escalate, there are significant downsides and risks to the global economy as the two biggest players fight it out, inevitably bringing other major economies into the fray.
And third, the European Union (EU) is under pressure. For instance, around half of pending Italian government debt needs to be rolled over in the next five years, presenting a huge challenge to the government sas its proposed budget deficits raise alarms among investors.
Plus, of course, there is Brexit and the huge amount of uncertainty that the UK's divorce from the European Union is creating in the UK, the EU and in markets across the world - and will continue to do for many years to come. The uncertainty will be especially acute should Britain leave in a no-deal scenario.
As ever, I urge investors to ensure that their portfolios are properly diversified, which means across asset classes, sectors, regions and even currencies. This is investors' best tool to mitigate risk and take advantage of the opportunities.
The writer is founder and CEO of deVere Group. Views expressed are his own and do not reflect the newspaper's policy.

By Nigel Green

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