One of the worst words you can use in investment circles is the ‘R-word’ – recession. And with recession rearing its ugly head, investors are starting at least to assess their portfolios to try to see how exposed they may be to an economic downturn.
Globally, what concerns investors is that many of the dire macro-economic issues that have been swirling for several years may be worsening, such as a Chinese slowdown, US-China trade conflict, weak European growth and the mountain of global debt. The inversion of the US yield curve last month – when short-term bond interest rates moved higher than long-term rates – which historically has tended to precede a recession, is one sign; as is the rising proportion of bonds that are being issued as negative-yield – that is, where investors are prepared to pay the issuer to look after their money, rather than expect a return. Investors appear to be, if not actively preparing for recession, certainly thinking very deeply about its likelihood.
In Australia, the latest data confirms that the nation’s economy has slowed notably, with annual gross domestic product (GDP) growth falling in the December 2018 quarter to just 2.3% — well below the Reserve Bank’s 2019 forecast of 3%.