Global investment manager Aviva Investors recently released a report estimating a one-in-three (~33%) chance of a global recession over the next 18 months. Is it time to panic?
Aviva Investors is a global asset manager and part of the Aviva Group (LSE: AV), the UK’s largest insurance company. Aviva Investors operates in 14 countries and has more than 1,500 staff. As at 31st March 2019, Aviva was managing £337 billion across multiple asset classes.
What’s The Outlook?
According to Aviva, global growth slowed to less than 3% during 2019, which is the weakest growth rate since the eurozone crisis in 2012.
Aviva puts this down to a deterioration in global trade and manufacturing, which has been caused by a slowdown in China, past tightening of monetary policy in the US and the introduction of trade barriers and uncertainty.
These factors, combined with weak growth in the eurozone, led Aviva to revise global growth estimates, and the asset manager now expects growth to remain below 3% for the next 18 months.
This would be the weakest sustained growth period in over a decade.
Based on the amount of uncertainty and the low growth expected, Aviva estimated a one-in-three chance of a mild global recession over the next 18 months.
On the sharemarket, Aviva said: “While many equity markets are close to their all-time high, we think they are fragile and susceptible to further downside news on growth.”
What Does This Mean For ASX Investors?
Australia could potentially be viewed as one of the more “at-risk” countries. Most predictions around global recessions right now focus on trade uncertainty and barriers.
Australia relies heavily on exports, particularly to China, so a slowdown in trade hurts countries like Australia more than those countries that aren’t relying on exports for growth. Companies exposed to trade with China include Rio Tinto Limited (ASX: RIO), BHP Group Ltd (ASX: BHP) and Fortescue Metals Group (ASX: FMG).
In situations like this, it may be useful to adopt that old saying, “hope for the best, plan for the worst”. I can’t predict whether or not we’ll have a recession in the next 18 months, but I can make sure that I’m only investing in companies with strong fundamentals, compelling valuations and the all-important margin of safety. Companies like Altium Limited (ASX: ALU) are good examples of businesses to add to a watchlist.
When the economy isn’t looking so good, the quality of the companies you invest in becomes even more important. Don’t get caught up in the hype of the next big thing, just focus on the basics.
For three high-quality, dividend-paying companies, have a look at the free report below.
Disclosure: At the time of writing, Max does not have a financial interest in any of the companies mentioned.