For Halloween, Trustnet decided to asked a number of industry experts what is scaring them about the global economy and markets outside of the more obvious threats of Brexit, the US-China trade war and the global economic slowdown.
Below, we find out what is currently ‘spooking’ the investment experts.
Tom Sparke: “A sharp recovery in economic data could take a heavy toll on bond markets.”
First up is Tom Sparke (pictured), manager at GDIM Discretionary Fund Managers, who said the bond market could suffer if economic growth surprises to the upside and the looser monetary policy that many expect never materialises. 
“Many bond prices are already at uncomfortably high valuations and any hints that the global outlook might not be as bad as feared could convince central banks to re-think their strategies,” he explained.
“The higher level of duration that a typical gilt fund might hold is quite long in terms of duration and as such they can lose value swiftly as yields rise from very low levels.
“An allocation to US Treasuries or European sovereign bonds should provide a lower average duration so might be less sensitive to these moves and, as ever, diversification is key to reducing risk.”
Sparke stressed that this sharp recovery in economic data is not his firm’s our base-case scenario and it still thinks that an allocation to high quality bonds is “essential” in such an uncertain environment.
“However, this possibility remains a lingering concern and we’ll be keeping a close eye on economic indicators for signs that growth may be improving so that our bond prices don’t go bump in the night,” he added.
Andy Merricks: “The lack of concern being shown towards the inevitable lack of liquidity”
Andy Merricks, head of investments at Skerritts, is worried that many investors seemed unconcerned by the lack of liquidity in bond markets – especially as this comes at a time when events such as the closure of Neil Woodford’s flagship equity fund should have put liquidity at the forefront of everyone’s minds.
“What concerns me most is the complacency and lack of concern that is being shown towards the inevitable lack of liquidity that we are going to witness in the bond markets during the next global crisis,” he warned.
“If the Woodford debacle teaches us anything, it should be about being able to get out of an investment if you need to. The massive advance and popularity of ETFs and other passive vehicles during this current longest bull run on record, coupled with the forced changes in banking practices as a consequence of the global financial crisis of 2008, means that today most of the world’s corporate debt is held not within the banking system, but in the shadow banking system which includes ETFs and mutual funds (or unit trusts and OEICs as they are known on this side of the Atlantic).
“As with any illiquid asset however, there is very little difficulty in buying it. The danger is that it becomes like trying to check out of Hotel California when you wish to sell it. I’ve heard of even the biggest bonds having no offers from market makers for three days or so. Imagine how the market will seize up in times of crisis when everyone’s heading for the exit at the same time.”
Ryan Hughes: “The perpetual belief that central banks will bail investors out”
Ryan Hughes (pictured), head of active portfolios at AJ Bell, said that whilst there is much to be worried about in the global economy his main concern is equity and fixed interest investors’ expecting central banks to step in during hard times. 
“This approach is leading to some incredibly irrational behaviour with equity market hitting record highs and fixed interest yields being close to record lows,” he said.
“As ever, both sets of investors can’t be right in the long run and with more commentators now speculating that we might be moving closer to major fiscal stimulus and even helicopter money, it looks like the greatest financial experiment in history may be about to enter a new phase.
“What this does to financial markets is anybody’s guess but after 10 years of ultra-low interest rates and central banks in the major economies being the major buyers of government debt, we have clear distortions in the market that have kept alive companies that in ordinary times would have probably gone out of business.
“Ultimately, the global economy will need to be able to stand on its own two feet without the constant requirement for stimulus but that still feels some way away right now and the memory of what normal looked like, is sadly, just that, a memory.”
Richard Hunter: Not just one but three problems
Richard Hunter, head of markets at Interactive Investor, sees three “red flags” in global markets, the primary being “the current brittle environment” of corporate earnings, particularly in the US.
“There have recently been some weaker manufacturing data emanating from the States, but the acid test would come if the US consumer showed any signs of retrenchment,” he said. “The US economy is highly geared towards consumer spending, so one area which is currently under scrutiny is the discretionary spend sector, seen as something of a canary in the coal mine.”
The other two worries Hunter has surround interest rates and debt, and pressure on oil prices from geopolitics.
On the debt and interest rate side, Hunter said: “At the current historically low levels, both individual and corporate debt is easily serviceable. If interest rates needed to rise, however – such as inflation unexpectedly picking up strongly – this would put pressure on repayments which would naturally lead to a higher level of defaults and bad debts.
He said this is “particularly concerning” in areas where ‘shadow banking’ or – loans away from the traditional banks – is prevalent, such as China. This issue was recently highlighted by the International Monetary Fund.
On oil prices, Hunter noted the “difficult times politically” and that certain parts of the world such as the Middle East are experiencing “something of a powder keg environment”.
“Any further negative geopolitical developments could once more put upward pressure on oil prices, for example,” he added. “This has the dual impact of making exploration and production more expensive (the oil majors, BP and Shell, are large and important constituents of the FTSE100) as well as potentially crimping consumer spending as petrol becomes more expensive.”
Haig Bathgate: Another three problems for markets
Haig Bathgate, head of portfolio management at 7IM, also sees three things that could spook markets and investors over the longer term.
“One of these is the extent that growth stocks have outperformed value. Large-cap growth/tech has never exhibited such relative outperformance since the end of the dotcom bubble in the late 1990s. Large-cap tech in particular is different this time around, but the multiples are very pronounced and this is being fuelled further by share-buybacks,” he said.
“Another area is negative yielding government bonds and, more recently, corporate bonds. Western government bond yields and so called ‘high quality’ corporate bonds have never looked as frighteningly expensive and investors are now accepting negative yields not only in real terms but also in nominal terms too. This is madness must surely be a ticking time bomb. The question, as always, is how to predict the timing.
“Last but by no means least is the looming spectre of the next bear market. We’re some 11 years since we last had a proper stock market correction and sustained economic downturn.
“We know that the banks have been restructured through revised capital adequacy arrangements and the closure of ‘casino banking activities’, which now take place outside the purview of the regulators and are therefore hard to quantify. We know that the wrong people have access to credit at the wrong rate – the question is where exactly is the bubble in the shadow banking sector and what might cause it to pop?”