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Investor risks and opportunities for the year ahead

You can look forward to a host of opportunities in 2019, but it doesn’t come without some risks

History has taught us that stock markets tend to go up over the long term.

The new year is upon us, and 2019 could indeed be highly rewarding for investors. However, although there are numerous positives for investors to focus on as we launch into this year, as always there are certain geopolitical factors to keep a close eye on that could negatively impact investor growth and returns.

Starting with the positives, I believe there are three key points that will result in an optimistic outcome for investors in 2019.

The first is robust global growth. The International Monetary Fund forecasts world GDP at 3.7 per cent in 2018 and 2019. This growth is the result of increased consumer demand, which in turn bolsters corporate sales and should lead to elevated profits — all factors that make up a strong, resilient economy.

The second key point involves the global financial system and its overall improvement. Looking back over the past 10 years, it is undeniably in a much healthier state now. Financial institutions, this includes all major banking groups, have significantly reinforced their capital. This places them in a much stronger position should they be challenged with any problems that may come to light.

Thirdly — typically, stock market valuations are not overvalued, with the exception of a handful of sectors. At present emerging markets are the ones that are offering value.

Conversely, there are certain elements that should be considered going into 2019 that could adversely impact investor returns.

To begin with, the US Federal Reserve is planning to hike interest rates. Should this occur, it will in all likelihood stifle US and in turn global growth, while at the same time buttressing the dollar even further.

Then there’s the ongoing trade war between the United States and China. Despite the fact that US President Donald Trump seems to have an increasingly upbeat tone in his dispute with China, the signals are still very much equivocal in regard to the dialogue with the world’s second-largest economy. Of course, should the trade tensions intensify further, the implications will be vast for the global economy. Grappling between the two largest players will undoubtedly drag other major economies into the ring.

The third point that should be taken into account is the increasing pressure the European Union faces. As an example, Italian politics and deficits represent a challenge to the Eurozone austerity viewpoint. Around 50 per cent of pending Italian government debt needs to be rolled over within the next five years, which is a massive task for the government as the budget deficits proposed in recent weeks have led to alarm bells for investors.

In addition, the issue of Brexit and Britain’s divorce from the European Union is generating considerable uncertainty within the UK, EU and world markets, which will remain the case for many years. This uncertainty will be intensely heightened should Britain crash out of the EU without a deal.

As such, I would urge investors to ensure their portfolios are sufficiently diversified over asset classes, sectors, geographical regions and currencies. This would allow them to be in an optimum position to sidestep risks and make the most of the opportunities that arise.

I can’t predict the future, but it’s important that investors stay invested. History has taught us that stock markets tend to go up over the long term — remember that in order to not miss out on opportunities.

The writer is founder and CEO of deVere Group

History has taught us that stock markets tend to go up over the long term.

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