A look at the world economy and Developments in the asset management market in 2018
The start of a slowdown in global growth
Although global growth started to slow in 2018, US growth remained strong, supported by fiscal policy. On the other hand, growth was very disappointing in the eurozone and the situation worsened in emerging economies.
In the United States, confidence remained very strong until the end of the year, the labour market continued to improve and inflation remained contained. The Federal Reserve therefore continued to normalise its monetary policy. However, the Trump administration’s introduction of tariffs fuelled fears of a real trade war between the United States and China, with negative effects on both trade growth and confidence at the end of the year. The US economy is expected to weaken further by the end of 2019 and lead the Fed to end its rate hike cycle.
In the eurozone, growth has been very disappointing. Firstly, industrial activity and exports were affected by the high level of the euro at the beginning of the year, and then by trade tensions. In addition, due to temporary factors (changes in emissions standards), German automotive production declined sharply. Lastly, the rise in oil prices (until October) and the rising political uncertainty in the major countries over the course of 2018 (Germany, Italy, France) weighed heavily on activity – not to mention the lack of certainty regarding Brexit. Whatever the case may be, growth in Europe is expected to stabilise from the spring of 2019, with political tensions remaining high in the run-up to the European elections. Turning to prices, core inflation (excluding energy and food) is expected to remain low (close to 1%) in 2019. The ECB, which ended its asset purchase programme in December 2018, could extend new loans to the banking sector (TLTRO*). No interest rate increase is expected in 2019.
In emerging economies, growth began to weaken in 2018. Many central banks put an end to their monetary easing policies or even raised their rates in order to contain inflation caused by the depreciation of their currency against the dollar. Emerging markets were weakened, not only by the increase in geopolitical/international and idiosyncratic risks (crises in Turkey and Argentina) but also by the trade war between the United States and China.
Economies will not remain synchronous in 2019. Despite very contrasting developments across countries, growth is expected to recover slightly towards the end of 2019 in emerging economies, while it is expected to stabilise or even slow down in developed economies. Eventually, world growth is expected to stabilise at around 3.5% in 2019 and 2020.
Rising interest rates, trade tensions between the United States and China, renewed market volatility, Brexit, etc. Faced with uncertainty, investors turned to less risky, more diversified investments and played the decorrelation card.
In Europe, net fund inflows barely reached €62 billion, far from the record €846 billion reached in 2017. In this context, diversified funds, particularly those offering flexible, balanced allocations and those providing regular returns, were the best performers (+€77 billion). Equities were also popular (+€46 billion), particularly funds invested in the international, emerging and US markets, as well as thematic funds. Funds invested in real estate were also very successful (+€10 billion). In contrast, bond funds recorded significant redemptions (-€70 billion), with the exception of a few nontraditional products such as those with an absolute return objective.
In Asia, fund inflows were particularly dynamic: +€317 billion in 2018, although this represented a 20% decline compared with 2017. This result is explained by the continued strong appetite of Chinese investors for money market funds (+€142 billion) and, to a lesser extent, by interest in equities, particularly in Japan, China and India.
In the United States, flows reached +€291 billion in 2018, a decrease of nearly 60% over one year. Investors turned to fixed income products, both money market funds and short-term bond funds (respectively +€195 billion and +€77 billion). International equities (+€69 billion) were preferred to local equities (+€36 billion). Similarly, target date funds (retirement planning) attracted +€57 billion.
Passive management continued to expand, both in equities and fixed income, and represented +€83 billion of net inflows in Europe, +€128 billion in Asia and +€372 billion in the United States.
Responsible and sustainable investments (ESG)* continued to grow (+€54 billion) worldwide, across all asset classes and in all client segments.
2018 net sales by region of sales and asset classes
United States 291
- Money Market
Sources: Broadridge Financial Solutions – FundFile, Deutsche Bank (ETF market), Amundi / Open end funds (excluding mandates and dedicated funds) as of December 2018.