The Spear’s Wealth Insight Forum hears that there is a ‘one in three’ chance of the US hitting a recession next year, reports Arun Kakar
There is ‘one in three’ chance of the US going into recession by the end of next year – and there will be a least two rate cuts by the Federal Reserve before the close of 2019.
These were two of the headline projections from Dr David Stubbs, head of client investment strategy EMEA at JP Morgan Private Bank, speaking at the Spear’s Wealth Insight Forum this week.
Stubbs warned that even if the world’s largest economy escaped recession, ‘there is going to be quite a significant slowdown which is going to make markets bumpy’.
He added: ‘You don’t need a recession for markets to worry. Credit spreads in corporate bonds, we would expect them to widen out significantly in the next year or 18 months as the market has to price in the possibility that some companies are going to struggle.’
As fears grow about an end of the longest bull market in history, Dr Stubbs pointed out that the actual GDP growth was ‘actually pretty low’ since the recovery from a ‘global recession accompanied by a global financial crisis’ in 2008.
Whilst the bank doesn’t think that there is a clear end to the bull in sight, it pointed to the ‘major change in the mind’ of major policymakers worldwide as they shift from inflation worries to late cycle preservation.
‘We are comforted that almost every major policymaker is now focused on extending the cycle in a way that they were not, only six to 12 months ago,’ he said. ‘Equally we have to be honest with clients – the outlook for a plain, balanced portfolio is not great.’
Addressing some 200 HNWs and private client professionals assembled at the Langham hotel, Dr Stubb’s comments were set against a backdrop of macroeconomic themes affecting HNW portfolios ‘finding growth in a low growth world’.
Another key theme was China, which Dr Stubbs said was not going to return to the seven to eight per cent GDP growth rates of several years ago.
Highlighting the 80 different stimulus measures from the government in the last 14 months, Dr Stubbs said that most of the Chinese economy had stabilised, but not in the ‘robust’ rebound that has come to be expected.
‘It is on a path to four to five per cent growth,’ he told the audience, warning that investors trying to ‘play the growth’ of its economy can no longer buy ‘proxies of China’ such as Australia. ‘More and more, we have to focus on the next generation of Chinese growth,’ he added.
Amid an investment environment of low cash yields, low bond yields and equities not ‘screamingly cheap’, Dr Stubbs said the bank had implemented a range of different strategies to involved in next generation of technological companies, protecting the wealth from the market risk on the horizon. The importance of participating in the market while remaining protected and finding growth amid a climate of slow growth were key themes.
‘The best portfolios I see are those which are well segmented between the goals of the clients and utilise all the tools on the toolbox,’ Dr Stubbs told the forum. ‘Derivatives, hedge funds, and long run growth with things like private equity and real estate holdings: more than ever we want to wrap a traditional portfolio into those kind of alternatives.’
Dr David Stubbs was addressing the Spear’s Wealth Insight Forum at the Langham hotel on 1 July 2019
Arun Kakar writes for Spear’s