NEW YORK (Reuters) – Greg Jensen, co-chief investment officer of Bridgewater Associates, the largest hedge fund in the world, is forecasting “significantly weaker, near-recession-level growth” next year.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., December 20, 2018. REUTERS/Brendan McDermid
In a telephone interview on Thursday, Jensen said Bridgewater is anticipating gross domestic product growth close to 1 percent in 2019 and a little bit lower for the rest of the developed world. Third-quarter U.S. GDP increased at a 3.5 percent annualized rate.
“The biggest theme developing is that you are going to have significantly weaker growth, near recession level growth in 2019, based on our measures, and the markets are generally not pricing that in,” said Jensen, who helps oversee more than $160 billion in assets.
“Although the movement has been in that direction, the degree of it is still small relative to what we are seeing in terms of the shifts in likely economic conditions. And so, we think that’s going to be the big story going forward, weaker growth and central banks struggling to move from their current tightening stance to easing and finding it difficult to ease because they have very little ammunition to ease.”
Jensen said all of this with the secular backdrop of political tensions across most of the developed world and “a cyclical downturn will just heighten those tensions and worsen de-globalization.”
In recent months, investors have been bracing for slowing economic growth. On Thursday, the Nasdaq Composite index .IXIC slumped to the brink of a bear market, finishing almost 20 percent off its August record. The S&P 500 .SPX is down more than 10 percent in December, on track for its worst month of the record bull run.
Jensen said, “The picture for profits is even more significantly bearish, so we think growth will slow and profits will slow significantly more than growth will slow.”
Jensen said that while U.S. equities in general are still highly priced relative to the likely changing conditions, “across the world there’s some equity markets that aren’t pricing in very much growth and on a relative basis are more attractive.” Bridgewater has relative positions in Emerging Markets, Jensen said.
“Our views are a result of a systemized process that we have built over 40 years of trading and studying markets and economies,” Jensen said.
Because the financial system is not as levered as it was, Bridgewater does not expect a financial crisis such as the one experienced in 2008, he said. “We think a much more gradual grind that gets market prices in line is more likely in a very slow economy that is difficult to stimulate. So a long dragged-out, slow condition,” Jensen said.
“We are bearish on equities but it’s a part of a diversified set of conditions across asset classes. That process has allowed us to have our alpha be uncorrelated over time to equity markets,” Jensen said. “We do equally well as equity markets go up or equity markets go down. So, we are having a normal year this year – as good as our typical year – and that is a function of the design of our alpha … we don’t have any tendency to be long any particular asset.”
Reporting by Jennifer Ablan in New York; Editing by Diane Craft and Matthew Lewis