Rising protectionism is the most urgent concern for investors, the international wealth manager finds.

A trade war, such as that between the US and China, is the greatest threat to global growth this year, according to a study by Deutsche Bank Wealth Management.

The group, which drew 700 responses in a poll of visitors to its website in December last year, asked them a range of questions about themes they expect to dominate the markets this year. Trade war was chosen by 31 per cent of respondents - way ahead of the second-biggest threat, “European politics” (Brexit, Italy, and other issues), which was selected by 19 per cent. The other threats, in descending order, were softer gross domestic product growth, earnings recession, quantitative tightening and central bank errors.

“We have repeatedly highlighted these two issues as the two major threats. Like the survey respondents, we are less worried by threats such as quantitative tightening and policy mistakes,” global chief investment officer Christian Nolting said in a briefing accompanying the results.

Recent months have seen a ratcheting up of trade tensions between the US and China, although the two countries have agreed to temporarily halt further tariffs and restrictions in a bid to try and resolve differences. The rise in protectionism contrasts with the experience of many investors used to expanding global free trade since the demise of the Berlin Wall in 1989. (However, it should be noted that last year Japan inked a free trade deal with the European Union, bucking this recent trend to some extent.)

More than half of the Deutsche survey respondents (53 per cent), felt that the next global economic downturn would begin within one to three years. Only 10 per cent expected to wait more than three years and 37 per cent were concerned that the ‘late cycle’ environment would end within 12 months. 

In spite of their trade war concerns, respondents felt the economies of Asia-Pacific and the US would show much stronger performance than those of other regions. Around 47 per cent of respondents thought Asia-Pacific would perform best, with 31% choosing the US instead. The eurozone lagged behind with just a 10 per cent share of the vote. The other options were Middle East/Africa and Latin America, the survey found. “We forecast 2.4 per cent US GDP growth in 2019 compared with 1.6 per cent for the eurozone. We have a long-term positive view on Asia within emerging markets, based on factors such as its solid fundamentals and policy flexibility. But we expect Chinese growth to slow to 6 per cent in 2019,” Nolting said.

Emerging markets in Asia were expected to offer the best equities performance in 2019 by 36 per cent of respondents, while the US was chosen by only 16 per cent of those polled. Defensive stocks got the second-biggest share of the vote at 23 per cent. The other options were emerging markets in Latin America, Japan and cyclical stocks.

Fixed income split
Respondents were divided on which fixed income asset classes would perform best in 2019. Around 28 per cent chose investment-grade bonds and 26% chose emerging markets hard currency. The other options – developed market government bonds, high-yield bonds, and emerging markets local currency -- scored between 14 per cent and 18 per cent.

The rise of environmental, social and governance (ESG) investing was evident here: It was the third most-popular choice, selected by 17 per cent of respondents. But by far most popular choices were technology, selected by 32 per cent, and healthcare, selected by 28 per cent. The other options were transportation, cryptocurrencies/blockchain and space.