Economy
Investors Should Plan for Market Volatility in 2019—Report
**Says Oil Prices Could Rise to $85 Per Barrel
By Dipo Olowookere
As investors prepare for 2019, UBS Global Wealth Management said they (investors) will need to weather more volatility in order to capture opportunities in the coming year.
According to the Year Ahead report from UBS, the world’s leading wealth manager, global economic growth will decelerate next year to 3.6 percent from 3.8 percent in 2018, and company earnings will grow at a slower rate.
However, a 2019 recession still looks unlikely, and the price of many financial assets has already moved to reflect uncertain prospects, it said in its Global Investment Outlook For 2019.
UBS Global Wealth Management’s Chief Investment Office (CIO) enters the year with an overweight position in global equities.
However, it stressed that as the market cycle matures, investors should diversify and hedge their portfolios to guard against volatility as well as political and other risks, adding that they should also take advantage of growth in fields like sustainable and impact investing, and pockets of value where financial asset prices are excessively low.
Chief Investment Officer at UBS Global Wealth Management, Mr Mark Haefele, noted that, “Investors should retain positions in global equities but plan for market volatility. A slight slowdown in economic and earnings growth doesn’t mean no growth, and the recent sell-off has left a number of assets more attractively valued, but investors must also take into account the tense geopolitical environment as well as monetary policy tightening.”
In its investment process, CIO seeks to test its ideas against professional investors’ views. Surveys of professional investors and wealthy US-based individuals reveal divergent outlooks for the year ahead.
It said close to half of professional investors see the US lagging global markets next year, while two-thirds of individual investors surveyed expect US stocks to match or beat global equities.
In addition, nearly half of the professionals surveyed anticipate the US dollar declining versus the euro, compared with less than one-sixth of individual investors.
It noted that the most popular asset class for professional investors entering the new year is emerging market equities. For individual investors the top pick is US stocks. Professional investors are nevertheless more optimistic than individual investors on how much upside remains in the US equity bull market, adding that few professionals regard US political risk as a bigger threat than US-China trade tensions and higher interest rates. Individual investors are more concerned about US political risks than professionals are.
It further said when asked when the next recession will start, the most common answer among professional investors is 2021. Half of the individual investors surveyed expect the next recession to start within two years.
Investment recommendations
CIO recommends that investors should retain an overweight position in global equities as we enter 2019. Nevertheless, they should also hedge against volatility by holding overweight positions in medium-duration US government bonds and the Japanese yen, as well as focusing on quality companies and avoiding excessive credit risk. They should also look to neglected areas of the market, including value stocks in the US and emerging markets, energy equities globally, and shares of financial companies in the US and China. Sustainable and impact investing continues to provide longer-term growth opportunities, as do emerging market and Japanese stocks, and US dollar-denominated emerging market sovereign bonds.
Americas
The US Federal Reserve should approach the end of its tightening cycle in 2019, while the support from US fiscal stimulus should wane. In this context, the US’s twin fiscal and current account deficits will likely weigh on the US dollar. Within Latin America, investors should keep an eye on Brazil, where the incoming administration has proposed a range of reforms that could improve the country’s fiscal sustainability.
Europe, Middle East, and Africa (EMEA) & Switzerland
The European Central Bank should start to normalize interest rates in 2019, which would support the euro against the greenback.
A clear recovery by the euro is needed before the Swiss National Bank will hike rates, although the Swiss franc has limited scope to depreciate against the euro. Within emerging EMEA, CIO sees the recent sell off in crude oil prices as overdone, and expects prices to rise towards $85 per barrel over the next six to 12 months, supporting prospects for the Middle East. However, investors should continue to diversify globally to avoid idiosyncratic political risks in emerging EMEA as well as the Eurozone and the UK, which is scheduled to leave the European Union next year.
Asia Pacific
The Chinese Yuan should continue to decline, easing 5 percent in trade-weighted terms against a backdrop of ongoing US-China trade tensions, slowing Chinese economic growth, and a diminishing current account surplus. By contrast, in the wake of Japan’s Abenomics program, the Yen is more than 30 percent undervalued relative to its estimated equilibrium on a purchasing power parity basis. Japanese bond yields could also rise as the Bank of Japan embarks on a slow normalization of monetary policy.
By Adedapo Adesanya
Energy stocks influenced the 4.76 per cent loss recorded by the NASD Over-the-Counter (OTC) Securities Exchange on Friday, December 5.
The culprits were the duo of 11 Plc and Nipco Plc,with the former shedding N32.17 to end at N291.83 per share compared with the previous day’s N324.00 per share, and the latter down by N21.00 to sell at N195.00 per unit versus the previous session’s N216.00 per unit.
Consequently, the NASD Unlisted Security Index (NSI) slumped by 170.16 points to 3,401.37 points from 3,571.53 points and the market capitalisation lost N101.81 billion to close at N2.035 billion from the N2.136 trillion quoted in the preceding session.
The OTC securities exchange suffered the decline yesterday despite the share prices of three companies closing green.
Central Securities Clearing System (CSCS) Plc was up by N1.80 to close at N39.80 per share compared with Thursday’s price of N38.00 per share, Air Liquide Plc appreciated by N1.09 to N11.99 per unit from N10.90 per unit, and FrieslandCampina Wamco Nigeria Plc grew by 78 Kobo to N56.57 per share from N55.79 per share.
During the session, the volume of transactions rose by 6,885.3 per cent to 18.2 million units from 4.3 million units, the value of transactions ballooned by 10,301.7 per cent to N389.7 million from N347.2 million, but the number of deals declined by 29.7 per cent to 26 deals from 37 deals.
Infrastructure Credit Guarantee Company (InfraCredit) Plc ended the day as the most traded stock by value on a year-to-date basis with 5.8 billion units worth N16.4 billion, followed by Okitipupa Plc with 170.4 million units valued at N8.0 billion, and Air Liquide Plc with 507.5 million units worth N4.2 billion.
InfraCredit Plc also finished the day as the most traded stock by volume on a year-to-date basis with 5.8 billion units transacted for N16.4 billion, followed by Industrial and General Insurance (IGI) Plc with 1.2 billion units sold for N420.2 million, and Impresit Bakolori Plc with 536.9 million units worth N524.9 million.
By Adedapo Adesanya
The Naira depreciated further against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, December 5, as FX demand pressure mounts.
The Nigerian currency lost N2.60 or 0.18 per cent against the greenback to close at N1,450.43/$1 compared with the previous day’s N1,447.83/$1.
Equally, the domestic currency declined against the Pound Sterling in the official forex market during the session by N4.48 to trade at N1,935.45/£1, in contrast to Thursday’s closing price of N1,930.97/£1 and shrank against the Euro by 43 Kobo to end at N1,689.17/€1 versus the preceding session’s rate of N1,688.74/€1.
Similarly, the local currency performed badly against the US Dollar at the GTBank FX counter by N2 to close at N1,455/$1 versus Thursday’s N1,453/$1 but traded flat at the parallel market at N14.65/$1.
As the country gets into the festive period, pressure mounted on the local currency reflecting higher foreign payments and lower FX inflows.
However, there are expectations that the Nigerian currency will be stable, supported by interventions by to the Central Bank of Nigeria (CBN) in the face of steady dollar Demand and inflows from Detty December festivities that will give the Naira a boost after it depreciated mildly last month.
Traders cited by Reuters expect that the Naira will trade within a band of N1,443-N1,450/$1 next week, buoyed by improved FX interventions by the apex bank.
As for the crypto market, it was down yesterday due to profit-taking associated with year-end trading. However, the December 1-Year Consumer Inflation Expectation by the University of Michigan fell to 4.1 per cent from 4.5 per cent previously and 4.5 per cent expected. The 5-Year Consumer Inflation Expectation fell to 3.2 per cent from 3.4 per cent previously and 3.4 per cent expected.
With the dearth of official economic data of late, these private surveys have taken on a new level of significance and the market banks of them to make decisions.
Cardano (ADA) depreciated by 5.7 per cent to $0.4142, Dogecoin (DOGE) slid by 5.1 per cent to $0.1394, Ethereum (ETH) dropped by 3.9 per cent to $3,039.75, Solana (SOL) declined by 3.8 per cent to $133.24, and Litecoin (LTC) fell by 3.7 per cent to $80.59.
Further, Bitcoin (BTC) went down by 2.6 per cent to sell at $89,683.72, Binance Coin (BNB) slumped by 2.2 per cent to $883.59, and Ripple (XRP) shrank by 2.1 per cent to $2.04, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
By Adedapo Adesanya
The oil market was up on Friday on increasing expectations the US Federal Reserve will cut interest rates next week, which could boost economic growth and energy demand.
Brent futures rose by 49 cents or 0.8 per cent to $63.75 per barrel and the US West Texas Intermediate (WTI) futures expanded by 41 cents or 0.7 per cent to $60.08 per barrel.
Investors digested a US inflation report and recalibrated expectations for the Federal Reserve to reduce rates at its December 9-10 meeting.
US consumer spending increased moderately in September after three straight months of solid gains, suggesting a loss of momentum in the economy at the end of the third quarter as a lackluster labor market and the rising cost of living curbed demand.
Traders have been pricing in an 87 per cent chance that the US central bank will lower borrowing costs by 25 basis points next week, according to CME Group’s FedWatch Tool.
Investors also focused on news from Russia and Venezuela to determine whether oil supplies from the two sanctioned members of the Organisation of the Petroleum Exporting Countries and allies (OPEC+) will increase or decrease in the future.
The failure of US talks in Moscow to achieve any significant breakthrough over the war in Ukraine has helped to boost oil prices so far this week.
A loss of Venezuelan oil production in case of a US military intervention will materially impact global benchmark prices as the market will have to replace Venezuela’s heavy crude.
Venezuela is estimated to pump about 1.1 million barrels per day of crude oil at present, so if the US-Venezuela tension escalation into an invasion in the South American country, this volume of crude would be at risk.
Reuters reported that the Group of Seven countries and the European Union are in talks to replace a price cap on Russian oil exports with a full maritime services ban in a bid to reduce the oil revenue that helps finance Russia’s war in Ukraine.
Any deal that could lift sanctions on Russia, the world’s second-biggest crude producer after the US, could increase the amount of oil available to global markets, weakening prices.
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