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"!! Announcements -  AAUC (AA UNION CAPITAL) Investment strategy - Positioning for late-cycle growth
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Politics, trade conflicts, and concerns about higher interest rates dominated 2018 and are bound to affect 2019 as well. However, the economic cycle will remain the key driver of markets. Although growth is likely to slow in 2019, we believe that the momentum is solid enough to support further economic expansion.

Typically, in late stages of past expansions, equities have outperformed other asset classes, while bond yields have risen and yield curve flattened. We therefore maintain a growth tilt in our strategy and recommend a small overweight in equities. While being mindful of risks, we also favor uncorrelated and convex return strategies. Our key investment themes for 2019 are interest rate normalization; regional economic divergence; and new geopolitical regimes.


Waypoints for 2019

From technology and USD stability to China’s management of its increasingly tricky relationship with the USA, we review six key market drivers and risks in 2019 with special attention given to implications for Asia.

[Image: JOagZ1E.png]

Keeping inflation under control

Growth momentum in advanced economies seems strong enough to extend the cycle into 2019 and beyond. The more important question for markets is whether inflation will remain as benign as it has been. If inflation rises significantly more than what markets (and we) currently expect, the US Federal Reserve (Fed) will be seen as being behind the curve. Bond yields would further increase significantly, while equities and other risk assets would likely decline substantially. Barring an unlikely surge in productivity, wage growth should be the key driver of inflation.

In a largely oil-importing Asia, there is an additional element of supply-side inflation from a potential rebound in the price of oil. Although the current levels do appear somewhat oversold, we do not expect a sustained and excessive rise that will contribute meaningfully to imported inflation. If this plays out, then inflation across the region is likely to remain fairly benign, except for possibly in India and Indonesia. China is likely to see inflation easing to around 2%, which should give authorities a much-needed wiggle room to deploy further monetary easing if needed.

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