Capital markets in 2019

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JP Morgan published, at the end of this October, a forecast for capital markets in 2019. While the general macroeconomic picture is positive, there are, however, certain developments that investors should consider. Here are some important trends you should be aware of: 

  • Global GDP is rising. JPMorgan forecasts an increase of 2.5% in 2019, the same as in 2018. This is, of course, good news for the global economy, which translates into stable growth forecasts.
  • Global economic growth in the long term (10-15 years) is 1.5% in developed economies (the US, Europe, Japan, etc.) and 4.25% in emergent markets (China, India, Brazil, Russia). The two ratios combined give the 2.5% ratio above.
  • Cyclic risks are also increasing. Of course, this means that the current economic growth may be followed by a contraction. This may mean that a whole series of assets are currently overvalued. The impulse of any investor could be to sell in this particular case, but JPMorgan warns of illiquidity risk, which basically means that overvalued assets are very difficult to convert to liquidity. These matter in case of an accelerated growth economy, such as Romania, but the red flag raised by JPMorgan is far from apocalyptic. The report does not include scary words such as “crisis”.
  • The estimates for the value of assets in North America are positive, from bonds to complex asset pools. As the US economy is (still) the strongest in the world, this trend has a positive effect at a global level.
  • Inflation remains within reasonable parameters. JPMorgan makes a thorough forecast on the dollar, by saying that in the medium term, inflation will range below the targets of the American central bank, the Fed. In emerging markets, which Romania seems to be assimilated to, but not mentioned as such, the report speaks about a higher volatility potential. Still, given the strict policy of the National Bank of Romania (NBR), no spectacular oscillations are to be expected.

My conclusions

In short, the JPMorgan report could be characterised using a euphemism specific to the financial markets, as cautious-optimistic. If not for the 2008 crisis, the report would have probably been more optimistic. However, Fortune reports that JPMorgan set 2020 as the date of the next financial crisis. If we are to believe the media, this recession will be less severe than the one ten years ago. Either way, 2019 will be, as far as the analysts predict, a rather good year.

However, as things tend to be cyclic in the global economy, I strongly believe that a drop is coming in the next 2-3 years, having seen as the market has grown significantly over the last 2, without any real support.

One other thing I would mention,  and that could affect big economies to a certain degree, is the massive migration we have witnessed, to countries with strong economies, such as Germany. This will make a difference and will entail not only political, but also an economic effort in those countries.

JPMorgan report can be downloaded in pdf format from here. You can also read the NBR report on inflation by following this link.

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