While 2018 will go down as one to forget for investors - as almost every asset class crashed at some point - many will now be nervous about the prospects for 2019.
However, the pessimism may have been overdone, and there are plenty of opportunities out there if you know where to look. So what will be the big investment trends in the year ahead?
Volatility is back
The stock market party of the last 10 years is coming to an end, says Edward Bonham Carter, vice chairman at Jupiter Asset Management in London. “Unconventional monetary policy such as low interest rates and quantitative easing lasted much longer than predicted, and this looks set to leave global markets with a bigger hangover than anticipated.”
The US Federal Reserve increased interest rates four times in 2018 with two more expected in 2019, while the European Central Bank is ending its programme of bond purchases. “This is sparking volatility across both the equity and bond markets,” Mr Bonham Carter says.
Chris Beauchamp, chief market analyst at online trading platform IG, which has offices in Dubai, says volatility will continue as monetary policy tightens. "However, share valuations are now starting to look attractive and could tempt buyers back into the market at some point.”
Tip: as volatility returns, long-term investors should buy on the troughs, not the peaks.
Higher US interest rates will hurt
It's often said that bull markets don't die of old age but are killed by the Federal Reserve, and this old saying could be proven right again. President Donald Trump is not the only one who fears Fed chair Jerome Powell is making a policy error by increasing interest rates despite the slowing global economy.
Steven Downey, chartered financial analyst candidate at Holborn Assets, says further increases in 2019 will be bearish both for equities and the bond markets. “This could drive the US dollar even higher as money flows in to take advantage of higher interest rates.”
Tip: higher borrowing costs may put a brake on the global economy but UAE residents earning dollar-linked dirhams should continue to take advantage when making remittances or investing overseas.
Europe will muddle through, again
Nick Mustoe, chief investment officer at asset manager Invesco, says the US equity market has never looked more expensive. “It has been skewed by technology stocks such as Facebook, Amazon, Apple, Netflix and Google owner Alphabet, but this growth isn't sustainable.”
Other markets should generate superior returns over the next few years, he says. “Europe looks a lot more attractively valued than the US.”
Mr Bonham Carter says the stand-off between Italy and the EU could lead to a full-blown crisis that is big enough to break up the eurozone, but suspects that once again it will hold together. “European officials are masters at cobbling together last-minute deals – that’s how the eurozone has always worked.”
Tip: Lyxor MSCI Europe ETF (JC5), iShares Core MSCI Europe ETF (IEUR) and Vanguard FTSE Europe Index fund ETF Shares (VGK) are cheap and easy ways to invest in Europe.
Emerging markets will outperform
The last 12 months have been tough on emerging markets, with China falling sharply, and Argentina, Venezuela, South Africa and Turkey succumbing to crisis.
Vijay Valecha, chief market analyst at Century Financial Brokers in Dubai, says China has been hit hard by US trade war. “If the two countries strike a deal tensions could de-escalate and the world's second-largest economy could spring back."
Tip: Mr Valecha says the simplest way to gain exposure is through low-cost exchange traded fund such as iShares MSCI Emerging Markets (EEM).
Oil will make a comeback
This was a wild year for the oil price, with Western Texas Intermediate (WTI) crude climbing to $76 in early October then crashing below $45 at Christmas amid rising inventories and falling demand.
Mr Valecha says fracking starts to become unviable at these prices and US shale production could tail off. "Investors were expecting a surge in US crude next year but we might not get it.”
The full impact of Iran oil sanctions will be felt by April, when at least a million barrels will be taken from the market. “We expect Opec to reduce output by up to 1.5 million barrels and the cumulative impact of all these measures will be a recovery in oil prices by the second quarter of 2019.”
Tip: United States Brent Oil Fund ETF (BNO) tracks the daily price movements of Brent crude, while the VanEck Vectors Oil Refiners ETF (CRAK) tracks companies involved in crude oil refining.
Artificial Intelligence is here to stay
As investors cool on US tech giants Mr Valecha says attention is switching to Artificial Intelligence (AI). “Machines are going to replace a lot of repetitive mundane tasks and this will be powered by AI. It is already in our homes and workplaces, and this is only the beginning.”
AI needs to study huge amounts of data and this requires parallel processing similar to human brains, he says. “Graphics processing unit (GPU) produced by companies like Nvidia and AMD help in parallel processing. Personal voice assistants like Siri and Alexa are also powered by AI.”
Tip: Mr Valecha says you can invest in the trend through ETFs such as Global X Robotics & Artificial Intelligence Thematic ETF (BOTZ) and Robo Global Robotics and Automation Index (NASDAQ:ROBO).
The UK is on a knife edge
Nobody knows anything in the UK right now, as the country descends into political chaos over Brexit.
However, this could offer an opportunity to investors, says Mark Boucher, co-manager of the UK-focused Smith & Williamson Enterprise Fund. “Domestically-focused UK stocks could jump 30 per cent on any outcome aside from 'no deal' as they are the cheapest they have been for nearly three decades.”
Mr Bonham Carter is cautiously optimistic: “Brexit is a worry but the British are adaptable and will likely find a way to make it work.”
Tip: the iShares Core FTSE 100 UCITS ETF or the SPDR FTSE UK All-Share UCITS ETF could be worth buying if you are feeling brave.
Tech start-ups drive UAE growth
Iyad Abu Hweij, managing director at Abu Dhabi-based asset management firm Allied Investment Partners PJSC, says the UAE is the leading market for technology start-ups in the MENA region, and it should build on this position next year. “Technology is shaping our future and more than $560 million was invested in over 260 start-ups across the region in 2017, according to Magnitt.”
The UAE’s advanced infrastructure and ability to attract top global and regional talent puts it in a strong position. “We expect additional venture capital and growth capital investments in tech start-ups and companies over the coming years.”
Mr Hweij also expects a significant increase in FinTech over the next few years, which has lagged relative to e-commerce and ride-hailing solutions.
Tip: this is an exciting trend but investing in tech start-ups is too risky for most private investors.