With key headwinds from last year reversing, even in the face of ongoing US-China uncertainty, there is a basis for expecting continued recovery and global growth in the fourth quarter compared with Q4 2018, according to Fidelity International's latest Investment Outlook.
The third quarter saw no resolutions to the many risks weighing on the markets and introduced a few new ones such as yield curve inversion, a higher risk premium on oil and the threat of impeachment of the US president.
But no resolution does not mean an absence of progress. Central banks have turned dovish rhetoric into material action in both developed and emerging markets, which, along with lower bond yields that support growth and targeted Chinese fiscal and monetary stimulus, gives us comfort. And economic data is pointing to flatlining, not declining, activity. Crucially, the US consumer is proving resilient, helped by employment levels remaining at record highs.
However, growth is still weak, and while investors should remain on their guard. Consumer numbers should be watched closely. If consumer data components show signs of fraying it could remove a key support for the economy.
Paras Anand, Head of Asset Management, Asia Pacific at Fidelity International,comments: "For now, the economy is bending, not breaking. In this environment we suggest portfolios are tilted towards safety but remain exposed to risk assets. That means a quality bias in equities, favouring US government bonds for protection in market sell-offs and being more selective on tenant exposure within real estate. As we enter the fourth quarter, there's plenty in the calendar to keep markets anything but quiet."
Fidelity International's quarterly Investment Outlook outlines views on major asset classes including equities, fixed income, multi asset and real estate. The views are built on Fidelity's fundamental research on markets, companies, governments, issuers, third-party managers, properties and tenants.
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