Fund managers named the UK and the US as the regions they think will produce the best stock market returns in 2019, an annual poll by the Association of Investment Companies has revealed.
Despite continued uncertainty surrounding Brexit and the US, managers believe these markets have the greatest potential to reward investors next year.
What’s more, managers also viewed emerging markets as the strongest region on a five-year view, with 33% of voters expecting it to produce the highest return.
Here are the views from key fund specialists.
Simon Gergel, portfolio manager at the Merchants Trust said 2019 promises to be a year of resolution. He said an end to uncertainty could release pent-up demand in the economy and could herald a return of foreign buying of UK equities.
A-rated Alex Wright from Fidelity does not have a view on whether a soft or hard Brexit is more likely. The portfolio manager's outlook for UK equities, however, relies on some clarification in the relationship between the UK and the EU, which would act as a catalyst for investors to revisit the UK equity market as a destination for capital.
‘Investors currently view the UK market as toxic. Can it get worse? Potentially yes – but for contrarians like us, some of these unloved markets are starting to look like the sort of ugly ducklings that present attractive long-term opportunities,’ added Alasdair McKinnon, fund manager of The Scottish Investment Trust.
Dan Whitestone, portfolio manager at BlackRock said this is an exciting time to invest in technology, as a new wave of emerging companies are coming through.
He believes that industry change often in some form of disruption, such as in distribution or manufacturing, or indeed changes in consumer behaviours, will be a key driver of stock market returns in the years ahead, both positive and negative.
‘Opportunities are plentiful in classic ‘stockpicker sectors’ undergoing or driving structural change, such as retail and technology,’ said Jean Roche, co-manager at Schroders. ‘The result of this is that the risks lie mainly in disruption, where companies or management teams who do not innovate get left behind.’
US is strong
Within equities, + rated Georgina Brittain from JP Morgan, favours the US and is sceptical of Eurozone stocks.
The co-manager said the US has led throughout the cycle and in weak markets this autumn failed to outperform. 'We believe the earnings resilience of the US is superior and will be supportive over 2019.
‘In our view, the same is true in emerging markets, where slower growth and the higher cost of US dollar funding both weigh on the earnings outlook; thus we are marginally underweight emerging market equity,’ she added.
Attractive valuations in Asia
Despite concerns, Dale Nicholls, portfolio manager at Fidelity, is buoyed by the fact that growth rates in China remain the envy of most economies. As such, activity in his portfolio has been focused on opportunities that arise during a period of indiscriminate sell-off.
Asian equities remain an attractive destination for investors seeking long-term capital and income growth, said Andrew Graham, portfolio manager at Martin Currie.
‘A near-term slowdown in global economic growth is already partly discounted in share prices and earnings expectations, and valuations have once again come down to attractive levels,’ he explained.