Singapore: As we start 2019, it's crystal ball gazing time again.
Some people say that making predictions of the stock market is an art, not a science. However, regardless of whether clairvoyants take an analytical approach or use intuition, markets are very difficult to predict, else there will be many more millionaires in the world.
Almost all major markets, barring India's, closed 2018, having lost ground as compared with a year ago- wiping off billions in companies market capitalisation.
Unsurprisingly, the biggest loser amongst Asian stock markets is China's, which was down 25.5 percent for the year. This is followed by Japan at 14.9 percent and Philippines at 14.4 percent.
After a frantic first week of market activity in 2019, India's stock market that gained almost seven percent in 2018, is already down one percent this year.
Signs around the world are not promising. The US-China trade war is creating uncertainty in global markets, compounded by the predicted slowing of most economies around the world and adding fears that the US Federal Reserve will continue to raise interest rates on concerns of inflation.
Just this week, exceptional job numbers continue to cause nervousness in the US market resulting in Federal Reserve Chairman Jerome Powell making a statement, which suggested that the central bank would be flexible about future monetary policy moves.
The global economic slowdown cannot be better illustrated than by the darling of consumer tech, Apple, issuing a warning about slower sale of its phones than anticipated. This caused its shares to plunge 10 percent on Thursday, wiping almost 74 billion dollars off the market value of the once most valuable company in the world. It has since recovered about four percent on the final trading day of the week.
Nearer home, China reported poor factory numbers in December, the worse since May 2017. Bloomberg reported Margaret Yang, market analyst at CMC Markets telling clients, "Asian markets took a deep dive into negative territory following another disappointing China Caixin manufacturing PMI reading. China manufacturing PMIs is falling at a pace faster than economists' forecast, suggesting globaleconomic slowdown and trade war is hurting the country's manufacturing activities."
The first week of trading in Asia ended mix with about equal number of markets declining and gaining for the week. Many markets recovered some ground on the last day of trading after falling earlier in the week.
So how will the markets trend in 2019?
Margaret Yang further added on Bloomberg TV that this year "is going to be a challenging year for everybody, not just China but also global. We are probably off the peak of a cyclical upswing with factory conditions slowing down not just in China, but in European countries as well."
MUFG Bank's East Asia head of global markets research Cliff Tan expects that investor nervousness will continue until at least the end of the first quarter with some certainty from the US Federal Reserve being the key to a market advance together with a bottoming out of earnings revisions.
Clive McDonnell, head of equity strategy at Standard Chartered Private Bank in Singapore believes that after declines in Asian markets in 2018, it is the turn of developed markets to be under downward pressure and that there is a very real risk that markets will end 2019 in negative territory.
Investment bank Goldman Sachs citing weak economic data and increased uncertainty cut its stock market predictions for the six months of 2019. In a Newsweek report, it further added that US growth will slow to two percent and that it is not particularly worried about a recession."
Nicholas Sargen of Fort Washington Investment Advisors was quoted by Money Magazine as saying that the bull market will continue for at least part of 2019 and feels that the Federal Reserve optimistic forecast for the coming three years is not accurate. He further adds that "the market is mildly overvalued, but it's not in a bubble. I'm not immediately bearish, since earnings reports are still fairly robust, which should give the bull market momentum into the first half of the year. After that, I see a natural slowdown of the U.S. economy."
In India the upcoming general elections will the focus and the economy and market performance will pivot around that event. Uncertainty will loom prior to the polls with the current government focusing on social programmes to solidify its support. However, commentators are expecting that post-elections, the new government will introduce fiscal stimulus as attention will return to the economy. Many are saying thatthe economy is expected to remain strong, but growth might be a touch lower than in 2018.
With predictions of low commodity prices, oversupply in the local farm market, import-export controls being kept in place together with food subsidies, inflation is expected to be kept in check. Another major inflation consideration is oil price and that if it remains relatively low, the Rupee is expected to regain some of the ground it lost in 2018. Broadly, low inflation and low interest rates will lead to India doing better than others in the region.India has an economy that is mostly reliant on domestic factors and is hence cushioned from any impact from US-China trade problems and US interest rates.
Analysts expect that upward movement in Indian stock market will be limited before the elections,but that trading momentum will be restored in the second half of the year. The general consensus is that the India stock market should be up around 10 percent by the end of the year.
Generally,there is pessimism in the market globally and this will continue into the first quarter. Expectations are that markets will be volatile. However, uncertainty in the first half of the year will dissipate and give rise to the markets performing better in the second. It is not likely that the world will go into a recession despite a weaker global growth outlook. However, markets will struggle for a stable footing until better economic data emerges from the major economies like US, China, Japan and the EU.