Capital market outlook for the second half of 2019: expansive central banks fuelling risk appetite among investors

Looser monetary policy supports markets

Erste Asset Management, the investment company of Erste Bank und Sparkassen, expects growth to deteriorate in the second half of 2019. But: “From today’s perspective we do not en-visage a slump; real global GDP growth should be in a bandwidth of +2.0 to +2.5% in 2019 after +3.0% in 2018,” explains CIO Gerold Permoser (source: “Global Economic Prospects“, World Bank).

Inflation in the developed economies is low. Important central banks have announced steps towards a looser monetary policy. For the USA, the markets have rate cuts of percentage point priced in. “A rate cut of 0.25 percentage points at the end of July is very likely,” as Per-moser points out. Only half a year ago, the market was expecting rate hikes.

Labour market as engine, trade conflict defused

The imminent reporting season should give an insight into the earnings development in the corporate sector. Thanks to the economic boom phase of recent years, the labour market is still strong in many parts of the world. The low unemployment rates are driving income and consumption growth. The political risk is on the decline as well. The fact that – as was announced on the sidelines of the G20 summit in Japan – the negotiations between China and the USA would be resumed has calmed the markets. This has done away with the risk of an imminent escalation in the trade and technology conflict.

Equities remain favourites among the investment classes

In an environment of low inflation and slightly weaker yet intact growth opportunities, the focus of Erste Asset Management in its asset allocation is on equities and emerging markets bonds as well as US corporate and mortgage bonds. “As long as the profit margins of companies do not come under more pressure and the political uncertainties do not escalate (e.g. the trade conflict between the USA and China, Brexit, or the conflict between the USA and Iran), equities will remain attractive,” says Permoser.

Active management in eventful markets

The line of mixed funds that Erste Asset Management offers, i.e. YOU INVEST (founded in
2013), is an attractive way of participating in the capital market. The assets under management of the currently five funds amount to EUR 1.07bn (as of 28 June 2019; source: Erste AM). The umbrella funds invest in a balanced mix of diverse asset classes, including government bonds, corporate bonds, and international equities. The composition and weightings of the asset classes in the various YOU INVEST funds depends on a clearly defined risk/return profile.

In the year to date, the funds have gained 3.7% to 9.7%*. Since their inception, they have all recorded a positive performance of 1.7% to 2.3% per year* (data as of 28 June 2019; source: Erste AM; calculated according to the OeKB method).

*Performance calculated according to the OeKB method. The performance accounts for the management fee. It does not allow for a one-time load of up to 4.00%, if applicable at the time of purchase, nor any other fees reducing return such as individual account or depositary fees. Historical performance data are not indicative of the future development of the fund.