Main Economic Concerns of 2019

We are only into the third month of 2019, but it already feels like an old year. The China-US trade war dominated the market headlines in 2018, and despite the turn of the year promising a temporary respite, the issue still remains a major talking point in 2019. Along with that, market analysts also view geopolitical risks and a slowing Chinese economy as the major factors that will influence market sentiment this year.

China-US Trade War

The China-US trade war was the single major economic concern in 2018, with market participants fearing that the pursuit of de-globalisation will collapse the global economy into multiple, highly protected national economies. The market had seemingly priced in the ‘trade war risk’ in 2019, but only because there was hope and signs of a truce.

It appears that the yearlong trade tension is now in its final stages, with positive headlines emanating from US and Chinese negotiators. Under the direction of President Donald Trump, the US has announced a suspension of all scheduled tariff increments until further notice. China has promised to buy more American products and to take a tougher stance on industrial espionage and technology transfer. With both economies unsettled during the period of tough negotiations, investors will hope this is not a pyrrhic victory. Still, the long drawn out talks have sown seeds of mutual distrust and any negative trade headline will likely scare investors.

Slowing Chinese Economy

After decades of rapid growth, the Chinese economy has, in recent years, shown signs of a slump. With China now accounting for about 19% of global economic activity, a potential slowdown in its economy is a concern for everyone. China is on pace to record a 5.6% growth in 2019, a drop from the average 6.5% of the past few years. These are still respectable numbers compared to other developed nations, but they are very weak compared to the average of over 13% that China has been racking up for about two decades.

Even more worrisome is the fact that the Chinese stock market tanked 28% in 2018, which was the worst performance in the world. China is also a major trading partner for most Asian countries, and a slowdown will surely have trickle-down effects. The sheer size of the Chinese economy more or less determines pricing in a wide range of global products, such as steel, cement, copper, coal and pork. An economic slowdown in the Asian giant will no doubt be a drag on the entire global economy.

Geopolitical Tensions

Brexit was a major theme in 2018, and it showed how geopolitical risks can have devastating risks on the global economy. There is still little consensus on the path to be followed, but the greater risk is the inspiration Brexit is offering across Europe. Populism is the trend across Europe, and it is expected that populists will carry the day in May’s European Union elections. The trend is also gaining much ground in France and Italy, which are major EU economies, while President Trump continues the same agenda on the other side of the world. Geopolitical risks seem to be at their most toxic levels ever and analysts have expressed fears that 2019 might well be the year ‘the world falls apart’.

Trading Opportunities

Investors, of course, are usually quick to express their fear in the market. Risk aversion will likely drive investors away from trading shares to safer options, such as trading options and bonds. ETF trading will also attract investors who wish gain instant diversification with less volatility risk as well as minimal tax obligation. The above economic concerns may promise volatility and uncertainty in 2019, but savvy investors can protect their capital and even enjoy some sunshine in what seems a dark path.