Juggle 2019 between stocks and bonds

Jongler 2019 entre actions et obligations

Photo: Spencer Platt Getty images / AFP
The firm Unigestion provides that the shares and the assets at risk will generate positive returns in 2019, but at a lower level.

At the Exchange, the 2018 was a year of transition, dominated by a return of volatility. A transition that will lead the investor to juggle this year with the correlation equities-bonds and to reconnect with the fixed-income securities or their equivalent, such as private equity and real assets.

A small study published at the beginning of December by the analysts of the National Bank asks the question. Correlation equities-bonds : are we at an inflection point ? In this historical overview, rather technical, the question is posed : “The trade tensions and protectionist pressures will push the world economy into a state of lower efficiency and underlying inflation pressures ? In other words, the u.s. economy is in a period of low growth and rising inflation ? ” ask the authors. In this environment, ” we learn from history that such a diet leads to a decrease in price earnings multiples “.

Adds a global economy that is prey to a shock in productivity fueled by technological innovations, such as robotics and artificial intelligence. “In this case, the plan, which is coming up may be comparable to that of the 1990s,” the study of the National, with inflationary surge in premium.

During this decade, which is deployed between the severe recession of 1990-1992 and the crash of technology stocks in 2000 with the bursting of the Internet bubble, the shocks are multiplied on a global scale. We think the mexican peso crisis in 1994-1995, and then russia’s debt, the asian currency crisis of 1997-1998, and that of the sovereign debt crisis, plunging notably in Argentina in the economic and social chaos. In the aftermath of the outbreak of the chinese growth immediately extinguished, resulting in its share of unemployed and of bad debt for the local banks.

For the United States, the characteristic of this decade compared to previous cycles has been the lack of any real inflationary pressures on wage and despite a phase of economic expansion will be sustained over time.

In the mid-1960s to the late 1990s, the correlation between us stock prices and the interest rates on the bond market of the u.s. Treasury, was mainly negative, reminds the Bank.

Forecast

The firm Unigestion, 2019 will be a year of continuity, with the continuation of the normalization of monetary policies, and an increased volatility on the markets. She sees a slowdown of economic growth, but not recession, with an acceleration of inflation under the pressure of wages and prices of inputs from stopping the profit margins of businesses.

Unigestion provides that the shares and the assets at risk will generate positive returns in 2019, but at a lower level. The firm prefers to, well, adjust to the decrease in the level of risk of the portfolio, and shorten the duration of the segment bond. “To reduce its vulnerability to market will be the key element in investment by 2019. “

Replacement strategies

Alain E. Roch, president and chief executive officer of the wealth management expert BlueBridge, concludes for its part, in a blog end of the year, at a ” startling metamorphosis that takes place “. “The outlook for the long-term return of a balanced portfolio appears to be limited by a number of factors, cyclical, valuations and high interest rates under pressure, while in an economy in end-of-cycle,” he says.

The choice of the specialist going towards the replacement strategies. “The private market, although less liquid, have outperformed the listed assets on the last ten years. And for those who can, exposure to real assets can generate positive returns while protecting against inflation. “In this first case, he cites a study by the CFA Institute, according to which the number of firms listed on public markets is in the 50% decline in 20 years in the United States, while it is stagnating in the euro area and the United Kingdom, companies are preferring more and more the benefits of private markets to those of public procurement. “This mutation the risk of penalizing the average retail investor, who invests now rather on the listed markets traditional, for example in the form of investment funds. It will suffer because the listed markets [and indices] are increasingly focused on old industries and less on growth stocks. “

With regard to the attention paid to elements of real assets, “if the purchase of works of art, collector cars or rare wines is on the rise it is especially real estate, agricultural land, forests and infrastructures that will benefit in the coming years,” believes Alain E. Roch.

If the purchase of works of art, collector cars or rare wines is on the rise it is especially real estate, agricultural land, forests and infrastructures that will benefit from it in the next few years

— Alain E. Roch

Investment in agriculture brings together the different cultures, the animal husbandry and the exploitation of earth to wood. “Agriculture is certainly not a new concept, but the recent craze of affluent clients emerges from a context of economic and demographic trends are favourable. “In terms of portfolio diversification, this category provides, inter alia, a low correlation with the traditional markets. “Agriculture has also historically been an excellent hedge against inflation. “

Adds the investment in the infrastructure. “These assets all share the following characteristics : a fundamental service to the community, a position of quasi-natural monopoly, a demand slightly dependent of the economic situation, long duration assets as well as costs and expected future earnings predictable, because often regulated by the State. “The president of Blue Bridge speaks of predictability and stability of income and protection against inflation. “Combining attractive decorrelation, and protection against inflation, infrastructure are, therefore, as an alternative to revenue bonds,” he concludes.

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