Global share prices could be boosted in 2019 by a looming change in economic policy, according to several fund managers.
The MSCI All Country World index lost 9.4 per cent in 2018 as higher interest rates, the end of quantitative easing (QE), and slower global economic growth combined to drag equity prices down.
Higher interest rates and the end of QE contributed to a decline in share prices because they push bond yields higher, and with higher income available from bonds, share became less attractive.
But Anthony Rayner, multi-asset fund manager at Miton, said the subsequent sharp lurch downwards in asset prices, accompanied by weaker economic data in many parts of the world, will lead to central banks slowing down the pace of interest rate rises and the unwinding of quantitative easing will slow, and just as the instigation of those policies led to a decline in equity markets, he feels a halting, or slowing, of those policies will boost equities this year.
Mr Rayner said: "Economic growth is slowing and financial market conditions tightened materially in the fourth quarter of last year, not least in the US.
"As a result, the US Federal Reserve has changed its language materially, emphasising their flexibility, rather than suggesting policy is on 'auto-pilot'.
"Meanwhile, China has already been easing policy, both monetary and fiscal, faced with similar dynamics that have been in play for some time.
"The change in Fed language has led to an aggressive curtailing of expectations for US rate rises this year, with some suggesting the Fed might even cut rates. Potentially more relevant, some are asking whether the quantitative tightening programme is likely to be put on hold."
Mr Rayner added that he believes policy makers would prefer to avoid a bear now, while they are in charge, even if it has consequences for the future of the global economy, and so will pause interest rate rises.
Bruce Stout, who runs the £1.6bn Murray International investment trust, said he expected the main beneficiaries of the changed economic environment to be emerging market economies.
He said: "The potential for an end to tightening US monetary policy and the possibility of an end to US dollar strength could provide the catalyst for numerous emerging economies to begin cutting domestic interest rates and stimulate economic growth.
"Festering trade protectionism and risks associated with fiscal and monetary policy mistakes still cloud the overall outlook and require prudent vigilance, but within Asia and Latin America, where expectations remain low and valuations un-stretched, numerous interesting investment opportunities still exist."
Guy Stephens, technical investment director at Rowan Dartington, said investors should be careful not to over react to the actions of politicians, which he feels they are doing now.
He said: "Whenever the noise becomes overwhelming, it is sensible to think back to what we are invested in, namely, company balance sheets, profits, dividends and interest payments.
"The world continues to go around and people continue to work for a better standard of living. Elected politicians are transitory, they come, they meddle and they go.
"History either remembers them, occasionally with a statue or, exceptionally, a banknote, or forgets them. Try to keep calm and try to keep focused on the intrinsic value of what we invest in and refrain from overloading on the media frenzy.
"We may not have got there yet, but wherever we are headed, we are nearly there. Some of the guesswork is about to be removed and with it, the uncertainty discount."
david.thorpe@ft.com
