The economy is en route to a recession in the next two years, according to Trevor Greetham, head of multi asset at Royal London Asset Management.
Speaking at an event on navigating market risks, hosted by Royal London yesterday (November 28), Mr Greetham said the world economy was possibly in "the second dip of a W-shaped recovery".
A W-shaped recovery involves a sharp decline followed by a sharp rise to the previous peak, followed again by a sharp decline and ending with another sharp rise.
He pointed out the October to November dip and 'panic indicator', which lasted the past seven weeks, was "one of the longest consecutive dips in history".
He said: "If we had this session a year or two ago, I would've said I don't see a route to a global recession.
"Now I can see it, and while it won't be next year, it's a good time to get your house in order."
Looking at the US economy, and the gaps between recessions in the past, he said the average 'expansion phase' had lasted about 3 years.
Currently, the US economy has been expanding upwards for about nine and ten years – three times longer than the average expansion.
Mr Greetham continued: "Give it another another six months or so and it will be the longest ever expansion of the US economy.
"We've got to a level where it's quite hard to make a lot more progress."
He added: "At the point at which growth weakens, the unemployment rate rises, signalling the potential start of a recession – so this will be something to watch carefully."
Also speaking at the session Melanie Baker, senior economist at Royal London Asset Management, predicted 2019 would be another year of economic growth – albeit slow or "relatively unspectacular" – and so, she said, a recession next year was unlikely.
She said: "Monetary policy is still accommodative in most major economies, and you've still got a fiscal story in the US – a substantial fiscal stimulus in the US which is still supporting growth.
"And if you look at the UK and European economies, they are due to have a somewhat more stimulative fiscal stance next year... oil prices have also fallen, which is good news for consumers, and should help to boost the economy too."
But she admitted there were risks which could knock the economy off course, especially the impact of Brexit and trade tensions.
She said: "We have the G20 coming up which will be important for confidence and sentiment, but ultimately though it seems hard to see that China will be able or willing to offer enough to meet all the US demands.
"So things could get worse and it is worth pondering what that might mean for the economy."
According to Mr Greetham, as well as falling stocks, "something else we can look forward to" in a recession will be general and prevailing levels of volatility.
However, volatility could also present opportunities for active investors who are able to navigate cross currents in the world economy, he said.
"Ensure there is some kind of strategy in the portfolio that can dynamically adjust things from a bull market to a bear market.
"Also, investor sentiment is really depressed, but we like to be contrarian investors, we think you should generally be looking to buy when everyone is panicking – and everyone is panicking," he continued.
"But what we find is that buying during panics, it's always almost profitable in a one to two month view."
He added it was "crucial" to have an active approach to multi-assets when a recession does come along.
He said: "In the next six to nine months, as we see some recovery, it is a good time to get your house in order in terms of both the underlying assets you've got in your multi asset fund.
"You can mitigate losses by insuring that you've not got too much funky stuff in there – we've always been very dubious about exotic fixed income, things like infrastructure bonds, aircraft leasing etc in portfolios which in a recession would suffer credit losses, so move away from that stuff, either through tactical asset allocation or through volatility capping."
victoria.ticha@ft.com
