Of course, it won’t all be smooth sailing. Last year was characterized by a couple of large share-price corrections. Given the current backdrop, we expect similar bouts of upheaval in 2019 and 2020. What could be the catalyst for these sell-offs?

Economics, for one. The Chinese government has taken steps to support the economy. Nonetheless, debt levels remain worryingly high. Business confidence has nosedived. This could limit the effectiveness of recent monetary easing. Further disappointments could therefore spook markets.

Trade will remain a factor. As we said, the United States and China could yet strike a deal. However, there are concerns Trump could open up a new front in his “America first” agenda. Car exports from Europe would be a prime target. His recent decision to end India’s preferential trade status surprised many. The likelihood of a showdown between the United States and other nations is now a real possibility.

Populism To Remain Popular

We will also keep an eye on politics, especially the simmering tensions across Europe. Spanish voters go to the polls (again) in April, while EU parliamentary elections are in May. The success of populist parties in those elections could influence subsequent policy, including how the Commission negotiates with Italy over its massive debt pile. Populism will rear its head from time to time, as many voters continue to feel they have missed out on the benefits of structural reform and globalization. Political discord is therefore understandable. Brexit is just another example of this phenomenon. All this could lead to periods of market disruption, adversely affecting cross-border capital flows.

Meanwhile, the Fed could raise rates more aggressively than forecast, putting renewed pressure on developed and emerging economies. This would again expose countries with high dollar-denominated debts.

Nonetheless, barring a major recession and as long as company profits remain on track, we think markets can recover from any setbacks. That said, in such circumstances, it is still important to adopt an active management approach. We will continue to look for diversifiers to safeguard our portfolios from undue levels of volatility. For example, last year we were overweight on the Japanese yen. This is a classic “safe-haven” currency, ideal for when times get rough. Now, though, the yen is too expensive. In some portfolios, we prefer an overweight position in the U.S. dollar versus the euro as a better way to safeguard our portfolios.

Finding Value

On the whole, equity valuations look attractive—although we would advise caution. The key question is: what will release that value? In the United Kingdom, for example, equity markets have trailed their global equivalents, as Brexit uncertainty has taken its toll. As a result, many companies now trade at historically low valuations. Domestically focused stocks have been particularly unloved, as they are more susceptible to a material U.K. economic slowdown. However, the pent-up spending and investment could be quickly released should the United Kingdom achieve a “positive” Brexit. Such stocks could therefore rebound dramatically.

A World Of Low Interest Rates