China is next year’s biggest opportunity, says Lloyds Private Bank’s Investment Outlook 2019

RECESSION, CHINA AND BREXIT: THE RISKS AND OPPORTUNITIES FOR INVESTORS IN 2019

China is next year’s biggest opportunity, says Lloyds Private Bank’s Investment Outlook 2019

Calls of a ‘trade war’ between America and China are overblown, according to Lloyds Private Bank’s ‘Investment Outlook 2019’ report. It outlines potential risks and opportunities for investors in the year ahead and, contrary to popular opinion, suggests that China could present the biggest opportunity for growing investments in 2019.

The report also tackles the question of what Brexit could mean for investors, the dark horse of Asia and whether we face another recession in the next 12 months.

China – early stage turnaround to surprise investors

The cheap Yuan Renminbi makes exports from China to other countries more attractive and could help boost trade and commercial opportunities. For 2019, we expect the People’s Bank of China to maintain a stable currency. Another supportive development for the economy is that interest rates for bank loans are in the process of dropping materially – due to the easing of systemic liquidity – which will continue for months to come. Finally, China has plenty of room for fiscal stimulus. The issuance of municipal special bonds, most of which are earmarked to fund infrastructure construction, has started to rise and will continue to do so during next year. This and similar developments should give further comfort to those invested in China.

Despite media reports on the US-China dispute, Lloyds Private Bank argues that it is not a ‘trade war’ in the real sense and the current situation can be better described as a ‘dispute’. It also suggests it is likely to have minimal influence on the global economy. Chinese exports have been solid despite ongoing trade tension. In the background, while the world has been concentrating on the dispute with the USA, Chinese relations with the EU have improved significantly, which could also spell bright prospects for businesses based in the country.

Brexit – which way is it going to go?

While an exit deal with the EU has been agreed in principle, the uncertainty around whether Parliament supports the deal is creating volatility. Given the uncharted economic territory, international governments are finding it difficult to understand or predict the potential impact on their own economies too, creating even more uncertainty.

Asia’s dark horse

The Investment Outlook 2019 points out Thailand as its 2019 dark horse. The Asian nation has come out of a small bump in its economy and is now looking like a very positive emerging market opportunity. Private consumption in Thailand is improving, led by passenger car sales. The Thai Baht is resilient and the annual bank loan growth rate is on the verge of rising above 10% while non-performing loans are less than 3% of the total. Lloyds Private Bank calls Thailand ‘the one to watch’ in 2019 and could provide a good bet for investors happy to include some risk in their portfolio. In contrast traditional emerging investor markets such as Saudi Arabia and Brazil have entered periods of political instability and uncertainty.

Recession risks in 2019

There are varying reports in the media about how bleak the economic future potentially is, and many commentators are predicting a global recession in 2019. Investor concerns could combine to knock market confidence, eroding growth. This could mean a potential recession in the next couple of years. However, Lloyds Private Bank’s analysis does not predict a global recession in 2019.

In monitoring indicators such as the difference between long-term and short-term interest rates worldwide, crude oil and metal price trends and the premium for bearing corporate credit risk, Lloyds Private Bank assesses the chances of a global recession in 2019 as being one in four.

Markus Stadlmann, Chief Investment Officer at Lloyds Private Bank, says:

“The brouhaha over a US-China ‘trade war’ has certainly dented investors’ confidence. However, our analysis suggests that this will have minimal influence on the global economy. In fact we see China as a good opportunity for investors in 2019.

“In terms of the outlook for next year, our view is that growth dynamics in several large economies will continue to lift corporate profits. This seems like a safe assumption in the Euro Area and Japan, as well as in China. Warnings of recession abound. Our analysis suggests a global recession isn’t likely and equity markets are ready for another step up.”

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