Year of The Pig: Advice for the Smart Investor

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Oink, oink!

The year of the Pig (more specifically, the Earth Pig), as Chinese astrology would have it, is upon us.

The last time we were in an Earth Pig year, it was 1959 and Fidel Castro had taken up the mantle in Cuba. The microchip was invented, paving the way for the digital age we live in today. Cyprus gained independence, the Antarctic Treaty came into being, Nixon and Khrushchev went head-to-head in their ‘kitchen debate’, the Soviet Union launched a spacecraft that went beyond Earth’s orbit for the first time, and the world was introduced to the miracle of transatlantic Boeing flights. Besides other things.

And here we stand in 2019 – the last of the teenies. If recent world events are anything to go by, this year – and the ones that will follow – will see huge changes in the world map; both geographically and geopolitically. As your astrologer will tell you, this is a good time to take stock of one’s finances and make strategic investments for the coming days. The pig is, after all, a symbol of good fortune and wealth in Chinese culture.

So, if you’re wondering where to invest this year, or how to leverage your already existing investments, let us give you some guidance gleaned from the stars (and from our keen analysis of market trends).

2019 Market Trends: What the Year Will Bring

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Smart investors know that the market reacts to global trends. The beginning of last year (2018) was positive – corporate earnings were high and economic data suggested an uptick. Until the VIX (CBOE Volatility Index) spiked in February, dealing a heavy blow to the S&P 500. This was followed by the low in October, which was sparked by a mix of fear that the Fed would raise interest rates aggressively and the cracks in Big Tech. Consequently, we ended the year at a low across all major indices.

Global factors will continue to dictate how and where we invest in 2019 as well. Here are the main themes that every investor should be aware of this year:

1. U.S. and U.K. geopolitics will affect investments and slow stock earnings

While it’s definitely not in the red zone yet, the American market has been in the orange for a while now (all puns intended). The Trump administration’s protectionist policies and sanctions have had an effect on world trade and investment growth. Same is true of the European market where the no-deal Brexit is the talk of the town, and the Euro is chasing the dollar.

Even in the absence of hurtful policies, political ambiguity and uncertainty can have a detrimental effect on investment growth in emerging and developing economies. Corporate earnings, too, are expected to have a modest growth in this fiscal year. While no one expects the bull run in the American market to come to a sudden standstill, do prepare for sombre returns.

2. The Chinese economy will make a recovery – but only after Q2

Last year was rough for China. One of the major reasons was that the trade war with the U.S. led to a 25% drop in the Shanghai stock benchmark index, and a 33% drop in the Shenzhen bourse index. China’s annual growth rate slowed to a meagre 6.5% – its lowest since 1992. Moreover, U.S. tariffs have greatly increased the price of Chinese exports leading to a 15-year low in retail sales.
The Chinese economy will take a quarter or thereabouts to recover from these blows. The government’s decision to infuse into the local market and provide a fiscal stimulus could enhance growth, but expect to see the numbers crawl up only post Q2 of 2019.

3. Industrial and financial sectors are good. Utilities and real estate will be dicey

A Wells Fargo report ranks the industrial and financial sectors as the most favoured market sectors for 2019. Corporations are likely to utilise their 2018 savings to make huge purchases – which will boost the industrial sector. Rising interest rates, a high demand for loans, and a conducive regulatory environment will do the same for the financial sector.
Dividend-paying utility stocks on the other hand, may not be as big this year. Instead, less-risky, fixed-income investments are set to make a comeback. Rising interest rates (read above) may have an adverse impact on some sectors, so investors should keep a lookout.

4. Consumer equity will continue to see growth due to higher demand

The global middle class has made itself heard in the last decade, and southeast Asia has been a major contributor to this burgeoning social strata. As our countries grow and we have more disposable income, companies offering consumer durables and services have more opportunities to create and sell. With ‘deep tech’ and digitisation, even traditional industries like healthcare are undergoing a sea change, creating more scope for innovation and investment.

Purists will tell you that investing in consumer equity is ‘defensive play’ because these stocks are generally considered less volatile. This would be a good investment option for conservative investors this year, and those worried about financial volatility. With low employment rates in the U.S. and rising wages, the retail sector is surely set for high revenues in 2019.

5. Global diversification will be more important than ever

Even as the U.S. and European markets slow down, global markets will continue to move forward. Investments in emerging markets could be a great addition to one’s portfolio now, given that countries in Asia (especially China, India, and South Korea) are expanding their markets and introducing newer economic stimulus measures.

The current bull market has had a long life – beating the October 1990-March 2000 run – but financial volatility is typical in a long economic cycle. Diversifying in emerging markets can help you mitigate that risk and add more stability to your portfolio.

How This Translates to Your Investments

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Trend-watching is fine, but the bottomline is that we also need to grasp how these trends and global themes affect your individual portfolio. So, what investment strategy should you be adopting in 2019 for a strong portfolio? Our experts have three suggestions for you:

Suggestion #1: Short-term bonds are your best friend this year.

Short term bond outlook looks positive due to good yields driven by an increase in fed rates. However, the medium-term outlook ranges from neutral to positive. Your best bet here is to invest short-term and roll over.

Suggestion #2: Stocks may not be such a good option.

There is an overall slowdown expected in equities in 2019. Market valuations have only been higher in 1999, and we have already talked about slow earnings due to U.S./U.K. policies, and the slow pace of the Chinese economy.

Suggestion # 3: Diversification will benefit your portfolio.

Our experts agree that you should take risk off the table, rebalance your portfolio, and choose predictable investments like Fixed Income Securities which offer reliable on-time returns in 2019. Apart from FIS, you can also look at the consumer and financials in developed markets, and emerging markets for diversification. If you are investing in emerging markets, stay aware of the volatility and macro events at play around the globe. The old adage of ‘buying low and selling high’ still holds water in the year of the Pig. This is also a good survival strategy should a market correction occur – you will have enough reserves to hold steady and not sell stocks during a downturn.

The biggest investment advice that you should heed this year is to create a tailor-made portfolio according to your investor profile, which takes into account your financial gains and risk tolerance and determines the suitability of different investing options.
We, at Kristal.AI, would love to help out with our carefully constructed investment advisory. You need only ask.

Bottomline: Be an Earth Pig, But Don’t Be Lazy

Now let’s go back to where we started – the Chinese astrology and the Earth Pig. The Pig is the twelfth and the last sign of the Chinese Zodiac. As the story goes, the Jade Emperor threw a party and everyone was invited (in some versions it was the Buddha – you can take your pick!). The Pig; being the gentle slow-moving animal it is, arrived last to the gala. It was promptly assigned the last place at the Russian roulette of the Chinese zodiac.

Whether you believe in astrology or not, there is a tale of caution here that takes on even greater importance given the current global and financial context. The writing is on the wall, and only the laziest investor would wait for another turn of the zodiac before making the right moves. So, make the most of the markets while the sun shines and the Earth Pig rolls around in the hay (we don’t know if they do. Yes, we totally made that up!).

With that, here’s wishing you many happy investments in the year ahead.

Xin nian kuai le!

 

Disclaimer

The materials and data contained herein are for information only and shall in no event be construed as an offer to purchase or sell or the solicitation of an offer to purchase or sell any securities in any jurisdiction. Kristal Advisors does not make any representation, undertaking, warranty or guarantee as to the update, completeness, correctness, reliability or accuracy of the materials and data herein. All opinions, forecasts or estimation expressed herein are subject to change without prior notice. Kristal Advisors and its affiliates accept no liability or responsibility whatsoever for any direct or consequential loss and/or damages arising out of or in relation to any use of opinions, forecasts, materials and data contained herein or otherwise arising in connection therewith.