Capital market in 2019
JP Morgan published, at the end of October, a forecast regarding the capital market in 2019. If the general macroeconomic picture is positive, there are, however, certain developments that investors should consider. Here are some important tendencies and my opinion on them.
- Global GDP is increasing. JP Morgan forecasts an increase of 2.5% in 2019, the same as in 2018. This is, of course, good news for the global economy, which translates to stable growth forecasts.
- Global economic growth in the long run (10-15 years) is of 1.5% in the developed economies (the USA, Europe, Japan, etc.) and 4.25% on the emergent markets (China, India, Brazil, and Russia). The two ratios combined give the ratio above.
- Cyclic risks are also increasing. Of course, this means that the current economic growth may be followed by a contraction. From the point of view of the pool, this may mean that a whole series of assets are currently overstated. The impulse of any investor could be to sell in this particular case, but JP Morgan warns on the illiquidity risk, which basically means that the overstated assets are very difficult to convert to liquidities. All these matter in case of an accelerated growth economy, such as Romania, but the red flag raised by JP Morgan is far from being apocalyptic. The report does not include scary words such as “crisis”.
- The estimates regarding the value of the assets on the North American market are positive, from bonds to complex pools. As the US economy is (still) the strongest in the world, this tendency has a positive effect at a global level.
- Inflation remains within reasonable parameters. JP Morgan makes a thorough forecast on the dolar, by saying that on medium-term (10-15 years), inflation will range below the targets of the American central bank, Federal Reserve Bank. On the emergent markets, with which Romania seems to be assimilated but not mentioned as such, the report speaks about a higher volatility potential. Still, given the strict policy of the National Bank of Romania (NBR), no spectacular oscillations are expected.
In summary, the JP Morgan report could be characterized, using an euphemism specific to the financial markets, as cautious-optimistic. Hadn’t it been for the crisis following 2008, the report would have been even more optimistic probably. However, Fortune reports that the same JP Morgan set 2020 as the date of the following financial crisis. If we are to believe the media, this recession will be less severe than the one of ten years ago. Anyhow, 2019 will be, as far as the analysts may predict, a rather good year.
From what I myself can see in the day-to-day business, the signs of a crisis are mainly the overestimating of companies and the massive migration to countries with strong economies, such as Germany, which means not only a political, but also economic effort is expected of the adoption country.