The top three opportunities for investors in 2019

When markets fall, we all feel bad. But sell-offs create opportunities. After the slump in markets in late 2018 there are three big investment opportunities for investors in 2019:

1. Value opportunities

Look for value that’s been thrown up by the recent market downturn. Stocks have become cheaper; their prospective returns have increased.

So look around for value in parts of the market that have been oversold. Stocks in cyclical sectors, such as autos or energy for example, have been hit hard on fears of recession. But we don’t believe that a global recession, or a recession here in Australia, is likely, and that should see cyclical stocks bounce back.

2. Emerging markets

The second opportunity is in emerging markets, which have experienced horrendous falls through last year.

Chinese shares, for example, fell around 30%. That’s not justified by the country’s economic outlook. We don’t think Chinese growth will slow that much because the Chinese Government won’t allow it – it wants to avoid social instability. Monetary and fiscal policy is already being eased there to prevent this.

We will see a rebound in the emerging world as it becomes clear those countries won’t go into recession and that profits will keep rising.

Obviously, I don’t know if we have hit a bottom yet, but it’s an environment where you can average into those sorts of markets.

3. Commodities

Commodity prices are another area where investors can look for a rebound as we go through 2019.

Many commodity prices were hit pretty hard in 2018 amid concerns about global growth. Again, we don’t see global growth slowing too much because global monetary conditions are still easing; the US Fed is likely to pause in the first half of the year while other central banks, including Europe, should further ease monetary policy and Europe is likely to see some fiscal stimulus. We also haven’t seen the excesses that normally comes before a recession. We should see solid growth in the global economy of around 3.5% in 2019, and commodity prices should rebound as that becomes clear.

To some degree we’re already seeing that in the oil price. I don’t think oil prices are going to return to their recent highs, but I do think the lows were way overdone.

Most commodities are priced in $US, and as the $US stabilises a bit, that should also enable commodity prices to rise.

Looking for the rebound

I don’t think the sell-off last year is the start of a grizzly bear market where shares fall 20% and a year after are a lot lower again.

Instead, it’s likely to be a gummy bear market where markets fall, it feels horrible, but a year later you’re up again.

That suggests the worst of the falls should have already happened. And while global shares could still hit new lows in early 2019, we should then see a recovery.

Investors should therefore be looking for opportunities with the likes of value stocks, emerging markets and commodities well positioned to take advantage of that rebound.