Financial historians will probably see 2018 as the year that the ‘boom in everything’ came to an end, as we have seen a decline in almost all asset classes this year.
Indeed, the US dollar emerges as a surprise winner, mainly by default though also due to an unexpected rally in the greenback as the US stock market rally sucked money out of the global economy. Until, that is, the S&P 500 finally topped out on October 3 at 2,925 points and then dropped like a stone.
So far the dollar is holding up because money is being converted back into dollars from shares as Wall Street’s fortunes wane. But a falling dollar is one hot tip for 2019, with the Fed stalling or cancelling planned interest rate hikes to stop equity prices declining further.
US treasuries have also had a bad year too. Should you therefore be exiting US assets altogether?
Warren Buffett’s own favourite indication of stock market overvaluation ought perhaps to have made him more cautious about loading up on Apple and US banks stocks in 2018.
He likes stock market capitalisation as a percentage of GDP. That ratio topped 180 per cent in October - higher than before the Great Crash in 1929 - and compared to 60 to 80 per cent for fair value.
For the downward shift in global stock markets that means we most likely "ain’t seen nothing yet".
True Chinese equities, the flagship of the emerging market universe, are deeply depressed in value. But with a trade war and global economic slowdown in progress most experts think it is too early to buy them.
Real estate prices in almost all global markets are reeling from the damage being inflicted on the biggest investors by global financial markets and rising mortgage rates.
But what if you have $1m or less in hand that you really feel you must invest? Here are six ideas:
1. A diversified basket of non-dollar linked currencies
If you agree that US company profits peaked in 2018 thanks to Donald Trump’s $1.5 trillion corporate tax cuts then imagine what that means for a stock market still near 1929 valuation levels. Investors will sell and ditch the dollar. So just buy a diversified basket of major currencies without the dollar. Brexit Britain’s pound could be ripe for recovery. But avoid cryptocurrencies, now increasingly exposed as a techno-scam and not the money of the future.
2. Precious metals
Gold held its value better than most assets in 2018 but should be good for a safe haven run in 2019 as an alternative currency and store of value. Prices of both gold and especially silver are relatively low compared with their 2011 highs. They should boom if the Fed succumbs to an easy money policy to combat falling share prices and the dollar sinks. To gear up buy shares in precious metal producers, an early standout winner after the crash of 2008-09. Share prices of some junior producers could deliver exponential gains.
3. UAE equities
Timing is difficult even for bombed out global stock markets. But price is a good guide. Dubai Financial Market was the worst performing stock market in 2018, so could be due for a bounce back in 2019 on higher oil prices. Could the DFM be the best bet for 2019? Buy the MSCI UAE ETF for its diversification.
4. Middle Eastern art
The opening of the fabulous Jameel Arts Centre on the Dubai Creek last month is a reminder of how far the modern art scene has come in the region. But that won’t be much of a compensation for art owners, who have witnessed a price crash for Middle East masterpieces this year. Think like a contrarian and it is a very good time to buy if you have an eye for this sort of thing.
5. Real estate in Vietnam and Hungary
Apartments in Budapest’s inner city still cost less than a third of Central London prices. Budapest is the cheapest capital city in Europe albeit with the fifth fastest rising house prices in the world over the past five years. Ho Chi Minh City high-end apartments are one tenth the cost of Hong Kong, though foreigners can only buy on leasehold unlike freehold-friendly Hungary.
6. Real estate in the UAE
Dubai real estate is at or close to the bottom of a five-year downturn. But oil prices have more than doubled since the sell-off began. Real estate prices seldom flat-line for long in regional business hub cities, and high tax-free salaries can support large mortgages. The introduction of retirement visas for high net worth individuals is just one of many measures that could be taken to support the recovery. Prime Dubai prices are less than half London prices. That said London house prices have collapsed recently and the British pound too, so that gap is closing.
Peter Cooper has been writing about Gulf finance for 20 years