Opportunities remain heading into 2019 however, it is important to start de-risking portfolios as indicators start to show signs of late-cycle behaviour, according to a report by RBC Wealth Management.
In particular, the firm, in its Global Insight 2019 Outlook, highlighted three themes investors should look to take advantage of heading into the next year; infrastructure, the dislocation between the US and China, and artificial intelligence (AI).
The report warned the escalating trade war between the US and China has the potential to have a significant impact on financial markets.
Jay Roberts, head of investment solutions and products at RBC Wealth and co-author of the report, said the US had "crossed the Rubicon" when vice president Mike Pence criticised China on a number of issues including political ideology, human rights, military expansion and commercial affairs in October.
In September, Washington imposed a 10% tariff on around $200bn worth of Chinese imports with President Donald Trump threatening to increase this to 25% by the start of next year if no solution was found. Beijing retaliated with an additional $60bn of imports.
"The nature of the strategic relationship between the US and China is undergoing a generational sea change," Roberts said.
"We expect this divergence to continue as both countries work to remove some interdependencies over time. There is growing mistrust on both sides," he added.
Instead of a market shock, the impact of the trade war would be an ongoing erosion of growth on both sides, adding investors should be mindful that some companies will be significantly affected while others would not feel the impact.
"Unfortunately for China, the dispute comes at a time of financial deleveraging, which itself is impacting the ability of Chinese companies to tap the domestic capital markets.
"While we forecast the Chinese currency to weaken, we believe that authorities would not entertain any disorderly sell-off."
The second theme the firm are bullish on is infrastructure investment due to the growing global demand, in particular in China and the US, along with the increasingly important role the private sector plays in investment.
Frédérique Carrier, managing director and head of investment strategy at RBC Wealth, added infrastructure offers the "greatest" near-term investment opportunity because of the need for new, refurbished and replacement assets.
However, she did caveat that although both the Republicans and Democrats want to increase infrastructure spending, a short-term risk to investment could be the split Congress.
"Infrastructure as an investment theme has a long life ahead of it," she said. "Emerging economies need equally massive infrastructure investment to achieve economic and social goals.
"Infrastructure investments should perform relatively well in the economic environment we foresee prevailing over the coming decade.
"Most infrastructure sectors benefit from economic growth and inflation to some extent, while demand tends to be relatively resilient in downturns."
In order to take advantage of this theme, Carrier said investors should invest in either individual stocks such as listed utilities pipelines or industrial companies, or funds that can invest across industries and geographies.
According to the report, the final theme, artificial intelligence, is already beginning to have an impact across a wide range of industries, enabling companies to become far more efficient.
In particular, Iryna Drobysheva, director, product innovation and strategy at RBC Wealth, predicted the health care, transportation, manufacturing, retail and financial sectors to be impacted the most from the rise of AI.
"What is clear is AI is here to stay," she said. "As with the arrival of computers, automation, and the internet, those companies that pursue the opportunities AI presents and understand the competitive threats it may pose, will likely fare better than those who choose to ignore it or fight a rear-guard action to forestall it.
"We believe factoring its impact into investment decisions and choices will rapidly become a 'must have' rather than a 'nice to have'."
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