2018 was a difficult year for equity investors. Although LD Pensions reduced its equity exposure at the start of the year, it was unable to avoid ending the year with losses in its equity funds and LD Discretionary. The start of 2019 looks more positive at first glance, but there is still considerable uncertainty, and sentiment could quickly turn.
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, are 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.
View the current returns
