Goldman’s $1 Trillion Asset Manager Is Betting on Stocks in 2019

LAGOS (Capital Markets in Africa) –  Equities is the place to be in 2019, according to a senior money manager at Goldman Sachs Asset Management.

The company, which says it oversees more than $1 trillion, is betting that global growth will extend into next year, giving support to stock fundamentals. GSAM favors emerging-market assets over the developed market, although U.S. stocks look appealing after the sell-off even as the economy moderates.

“We’re broadly positive on equities,” said Shoqat Bunglawala, head of the global portfolio solutions group for Europe, the Middle East, Africa and Asia Pacific, said by phone. “The largest opportunity in our view remains in emerging markets. We still see U.S. equities as attractive and price-to-earnings multiples have come down significantly.”

Equities worldwide have had a terrible year, with the MSCI World Index set for its worst annual return since 2008, as traders escaped into cash amid concerns about slowing global growth and rising interest rates. Investors are scrambling to come up with next year’s winning strategies after 2018 marked the first time since the financial crisis that buyers of stocks and credit both got negative returns, and only the second time since at least 1998.

Very Bearish
Major investors are currently very bearish, taking a long position in cash and a short stance in global equities, a December fund manager survey by Bank of America Merrill Lynch showed. GSAM’s optimism on emerging-market stocks matches that of other big asset managers, according to the BofA poll, which indicated that the outlook on developing-nation equities is currently the most bullish in 10 years.

The S&P 500 Index is trading near the lowest in four years, losing as much as $3.5 trillion in market value since the end of September. After tax cuts fueled earnings expansion of about 24 percent this year, profit growth is expected to come down to about 9 percent in 2019, according to Bloomberg estimates.

“U.S. earnings can continue and with valuation multiples having come down recently, that gives us some cushion to potential earnings downgrades going forward,” Bunglawala said.

After being overweight European stocks at the start of the year, Goldman Sachs Asset Management turned neutral “more recently” amid the uncertainty over the budget negotiations between Italy and the European Union. The Stoxx 600 Index, which is down 12 percent this year, got a reprieve on Wednesday as the European Commission decided not to seek to discipline Italy after the country’s populist government pledged to rein in its spending.

Elevated Volatility
GSAM is taking a neutral approach to U.K. stocks as Brexit negotiations continue, said Bunglawala, with the asset manager’s base scenario being that an exit deal will eventually be approved.

One thing that most money managers, no matter whether they’re bearish or bullish on stocks, seem to agree on is that the wild market swings seen this year are here to stay.

“Whilst we expect to see converging growth, through improvements in non-U.S. growth, which we expect to translate to positive returns for equities, we do expect volatility to remain elevated,” Bunglawala said.

Source: Bloomberg Business News