In an extensive interview with CNBC on January 8, 2019, Jack Ablin, CIO of Cresset Wealth Advisors, discussed his views on last year’s market tumult and the outlook for investment portfolios in 2019.

After unprecedented US equity market volatility and global market turmoil as 2018 drew to a close, investors are taking stock, so to speak, of their portfolios and looking for direction in the New Year. As we enter 2019, sentiment is at an all-time low – in contrast to 2018, when sentiment was at all-time highs. When one is at the intersection of reality and expectations, it is best if they have very low expectations. That is where we are today, and Jack believes this is a major positive.

He has become more bullish about the US market after 2018’s negative returns for the S&P 500 (-6.34 per cent) and the Dow (-3.5 per cent) after a hair-raising period of correction; at current levels he feels US equities are very close to fair value. International equities are now downright cheap, particularly emerging markets (EM). Jack is still mostly underweight equities across the board at this juncture, and will remain so until market momentum becomes more firmly favorable. Although relative strength in international markets has improved over the past three months, he would like to see more before making any asset allocation shifts.

Emerging markets have been cheap for a long time, but they are likely significantly oversold in light of several important factors that Jack believes favor EM equities going forward. Federal Reserve backpedaling on interest rate hikes likely means a weaker US dollar, which is a positive for EM currencies. This, combined with cheap valuations, is a two-fold benefit for EM stocks. Measured on a price-to-sales basis, he believes we can reasonably expect a 9 per cent annualized return from EM over the next three years based on historical performance.

Jack expects that EM and broader international equities could have a reasonably good year in 2019. He will look to shift from US small caps into international small caps, and from US large caps into EM large caps, when he sees more evidence that investors understand how cheap international and EM equities truly are.

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