The asset manager has forecast a slowdown in the US economy’s “exceptionally long” 98-month expansion that will cause other developed nations to undergo an economic downturn and enter what it terms “a mild global recession”.
Olaf van den Heuvel, chief investment officer of Aegon Asset Management, explained this will be because US labour growth can no longer continue to be the main driver of economic growth, as the economy is at full employment.
He added: “Corporate leverage has also increased, which makes corporates more sensitive to higher interest rates. Therefore, we expect that the economy can continue on its growth pattern for about a year, but expect a mild recession around 2019 which will as a result impact many developed markets globally.”
Aegon also believes monetary policy tightening from the Federal Reserve and European Central Bank over the next year will lead to “changes in markets, some less than others”.
It said the valuations of most fixed income asset classes are stretched and risk premiums are not sufficient enough to protect for the effects of monetary tightening and the foreseen economic slowdown in 2019.
The company also sees equity markets as having a limited upside potential due to rich valuations.
“We prefer Dutch mortgages and [other] asset-backed securities within the fixed income space and expect these categories to perform well in an environment where interest rates increase and the economy reaches the end of the cycle,” said van den Heuvel.
“In contrast, with regard to eurozone bonds and high yield investments in Europe and the US, we predict these categories to suffer most given the mild economic downturn for 2019. Moreover, we prefer listed real estate investments over global equity markets.”