Perhaps somewhat unexpectedly, 2019 has been a good year for global stocks.

The outlook wasn’t quite so rosy in early January, coming off a US-led selloff over Christmas when markets began fretting about the outlook for US interest rates.

Since then though, the US Federal Reserve has eased up off the gas; instead of wondering when the next rate hike would come, markets are now pricing in the next Fed cut.

Closer to home, rates are also falling after the RBA cut the offical cash rate in June — its first move in almost three years.

And while Australian economic growth looks to be slowing rapidly, stocks have steadily pressed ahead.

At the big end of town, the ASX200 is closing in on its all-time highs from the pre-GFC days in late 2007. Small caps haven’t been left out, with the ASX Small Ords index climbing almost 15 per cent year-to-date.

At the same time, a healthy dose of caution still exists; as evidenced by the large capital flows moving into global bond markets.

The move has been especially pronounced in Australia, as the yield on benchmark 10-year government debt continues to fall to new record lows.

And earlier this week, the latest Bank of America Merrill Lynch Global Fund Manager Survey revealed a healthy dose of pessimism, with almost nine out 10 respondents indicating the global economy was “late cycle”.

The month of June also saw the second highest reallocation away from equities in the survey’s history.

Spotting opportunities

The global macro outlook, combined with geopolitical risks led by the US-China trade tensions, are definitely combining to keep investors on their toes.

But for Dean Fergie, Cyan Investment Management director, there are still opportunities to be found amid the shadow of the global growth outlook.

Speaking with Stockhead, Fergie said investors should factor in that markets tend to create their own momentum — either positive or negative.

“We’ve probably been pretty cautious in 2019, and arguably pretty wrong,” he said.

“I don’t think anyone at the start of year expected values to rise like they have. After a big run like this you could argue that prices look a little stretched, but at the same time that creates its own momentum with everyone trying to be conscious of the risk.”

While he attributed some of the broader market gains to the re-rating in bond yields, but added the relationship to small caps isn’t always so strong.

“Rates alter the outlook for assets with long-term cashflows — property is an obvious example. But for small caps it’s not always so influential.”

“As a small cap investor you’re paid to find exciting stocks, so in that sense there’s little use sitting on your hands saying everything looks too expensive.”

Fergie said that even in a slowing economy there are individual cases — say innovative businesses like tech, IT or high-end manufacturing — where individual stock picks can pay off.