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July 2019

An investor’s guide to the
second half of 2019

Christopher Dhanraj
Director
Head of iShares Investment Strategy
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To borrow from Charles Dickens, it was the best of times, it was the worst of times. That is a good way to describe the markets for the first half of the year. Decent economic growth and earnings propelled stocks in the U.S. and elsewhere, but geopolitical tensions (particularly around trade) triggered bouts of volatility.

Investors face a renewed sense of uncertainty heading into the second half of 2019, as trade disputes and geopolitical tensions are now the key drivers for the global economy and markets. Many should consider adjusting their portfolios to prepare for the environment ahead. The key questions to address: What do I need to know about the markets, and what should I do about it?

To answer those questions, we highlight three key themes for the markets in the next quarter, along with ways to implement these views in your portfolio.

1. Protectionist push

What to know: We are downgrading our global growth outlook as trade disputes and broader geopolitical tensions stoke greater macro uncertainty. The range of potential economic and market outcomes further ahead has widened. We see a lull in China’s growth due to the fallout of U.S. tariffs.

What to consider: We favor reducing risk amid rising protectionism and prefer minimum volatility.

2. Stretching the cycle

What to know: The decisively dovish shift by central banks has depressed long-term yields and should help extend the long economic expansion. This makes for a benign near-term environment for risk assets, in our view, although uncertainty around the outlook has risen.

What to consider: We remain positive on U.S. equities and have upgraded European equities to a neutral view. We favor the min vol factor due to its late-cycle appeal, the momentum factor on its recent relative strength trends and see EM debt as an attractive source of income in a low-yield world.

3. Raising resilience

What to know: We believe portfolio resilience is crucial at a time of elevated macro uncertainty. What do we mean by resilience? In short, it is the ability of a portfolio to withstand a variety of adverse conditions – both on a tactically defensive basis and strategically across cycles.

What to consider: Government bonds play an important role in building portfolio resilience - even at low yield levels.