With just a few days to go before the end of 2018, it is not possible to say with any reasonable certainty whether a global equity portfolio will end the year with a slight gain. 2018 has been a difficult year for equities in emerging markets, Danish equities and US technology shares.
Fears of a recession are affecting the global economy
The global economy is currently teetering on the brink between continuing its recovery and heading towards a recession. Recoveries often go hand in hand with good returns on shares, whilst recessions often lead to significant falls. It is the uncertainty surrounding future developments that is affecting the markets.
Since the financial crisis exactly 10 years ago, the global economy has undergone a slow but steady recovery. Low interest rates over the past 10 years have helped to get economies back on track, and the world is now in a better and more robust position than it was 10 years ago. But the economy moves in cycles, so no matter how much central banks and politicians might wish to avoid recessions, they are inevitable.
Over the course of 2018, market sentiment has shifted from an optimistic belief in the recovery to greater uncertainty and fears of a possible recession within the next 1–2 years. These fears of a recession stem from several factors. Unemployment is low and wages are rising; the US Federal Reserve continues to raise interest rates, and corporate earnings are therefore potentially under pressure. Europe has never fully recovered from the financial crisis. Consumer confidence in Europe has fallen during 2018, whilst US consumers remain confident about economic developments and have increased their spending. China is attempting to stimulate growth through substantial capital injections, but at the same time the Chinese housing market is characterised by falling prices. A looming trade war between the US and China, as well as Brexit, is attracting a great deal of attention. Added to this is the fact that several major European countries, including France, Germany, Spain and Italy, are struggling with public debt, budget deficits and social unrest. All of this is a source of uncertainty for investors and may lead to significant fluctuations in share prices.
As regards Danish shares, the falls are due to a combination of disappointment with financial results – against a backdrop of historically high expectations for corporate earnings – and specific negative corporate developments, such as those at Danske Bank.
Strong returns in recent years
The financial turmoil of 2018 has led to losses in LD Pensions’ portfolios, but this development should be viewed in the context of the positive results achieved over a longer period. In 2017, good results were achieved in virtually all portfolios.
