10 silver linings for 2019

As we are approaching 2019 and hoping for a fresh reset in topics like climate change, rising inequality, growing nationalism, immigration and in the game of two superpowers, I like to point to 10 silver linings in the field of world affairs and equity markets in 2019:

1.)  European Union parliamentary elections: Moderate parties will win the European Union parliamentary elections in May 2019 as citizens of the European Union realize that far-right parties don’t have much in common with the fundamental values of the European Union, namely: respect for human dignity and human rights, freedom, democracy, equality and the rule of law. Sadly, the voter turnout will remain low and within the ballpark of the last election of 42.6% in 2014.

2.)  Indian general election: Close to 900 million eligible Indians will vote freely in the general election next year. Not sure whether Prime Minister Narenda Modi and his ruling party BJP will win the election, due to the fact that especially rural Indians are feeling unhappy with the level of new job opportunities created by the government. Anyhow the future for India looks bright. Oh and by the way, with over 300 million Indians using Facebook the elections will be a litmus test for Mark Zuckerberg`s “data ecosystem” and his ability (or willingness?) to put users interest and their privacy at the center.

3.)  Trumpism: Donald Trump faces a problem (well, probably more than one), as he begins to realize that his fantasy “The world was gloomy before I won - there was no hope. [...]” (Trump December 27th 2017) and our reality are not the same. Luckily, Mr. Trump likes to get re-elected in 2020. Therefore, he will backpedal on political brinkmanship (recent example is the government shutdown) in 2019. As a result, trade tensions with China, the European Union, Mexico and Canada will ease. Unfortunately, Trumps reality show approach is here to stay.

4.)  Brexit: The UK will leave the EU, but not at 11 pm local time on March 29 2019. Prime Minister Theresa May will be able to convince The House of Commons that the 595-page treaty with the EU is the best outcome that can happen. After minor changes for face-saving purpose take place in the first half of 2019, the treaty will get ratified in the second half. Thankfully a chaotic cliff-edge Brexit is not going to happen.

5.)  AKK: The newly elected leader of Germany`s biggest party, the Christian Democratic Union, Annegret Kramp-Karrenbauer will trigger a healing process of the deeply divided party. Even through political winds of change will not happen next year in Germany, Chancellor Merkel and her cabinet receive more room for actually ruling the country.

6.)  S&P 500: After all major US stock indices had a strong first half of 2018, fueled by the US corporate tax reform, a reversal of fortune took place in the second half of the year. At the time of writing Dow Jones, S&P 500 and Nasdaq have lost about 10% of their value this year. The good part of the story? US equity markets appear not that expensive any more with a forward one-year price/earnings multiple of less than 16x for the S&P 500. I therefore believe that 2019 will be a year for stock pickers.

7.)  MAPPS: Fortune was smiling upon the FAANG stocks (Facebook, Apple, Amazon, Netflix, Google) for most of 2018, before they suffered badly in the last month and wiped out hundreds of billions of market value in the current quarter alone (they are down an average of approx. 25% so far this quarter). With MAPPS I am calling out a new acronym for 2019 that I personally believe can outperform the broader market: Microsoft, Alibaba, PayPal, Palo Alto and Splunk.  

8.)  Nasdaq: Staying with the Nasdaq for a moment. I am not sure if “software is eating the world”, as Marc Andreessen once famously said, but I am convinced that we are just beginning to scratch the surface of digitalization. Long secular growth trends like cybersecurity, digitalization of payments and commerce, cloud and edge computing, mixed reality and IoT platforms will be on the list of key trends in 2019.

9.)  European equity markets: The S&P 500 counterpart in Europe, the Stoxx Europe 600, looks cheap too with a forward one-year price/earnings multiple of less than 13x (that is below its 10-year average). As the era of quantitative easing is drawing to close I still not believe in a growing interest rate environment in Europe in 2019 as countries like Italy with a public debt burden of €2.3 trillion (equals approx. 130% of GDP) are not capable of paying more interest. Because I believe in easing trade tensions in 2019 I expect a slightly positive stock market environment in Europe.

10.)  Payback time for VC: Household names in the venture capital space like Uber and Lyft are probably going to go public in 2019. Even more interesting are rumored IPO candidates like Airbnb, Slack, Palantir, Pinterest and Robinhood. In general I foresee a strong IPO pipeline and with that a healthy market sentiment for IPOs in 2019. But because many of those companies are still burning cash (Uber reportedly lost close to $900 million in the second quarter of 2018) I remain cautious and not willing to pay sky-high valuations.

While predictions are hard to make, wishes are easy to communicate: Merry Christmas and a Happy 2019.