With uncertainties aplenty, managing volatility to build a strong portfolio is a must, with high-yield bonds and equities in selective Asian markets potentially the key to success for savvy investors.

The risk of global recession may still be slight but during 2019 is now being considered a possibility, with the risk of below trend growth even higher, as detailed in the recent output of J.P. Morgan Asset Management's investment quarterly meeting.

These quarterly meetings and subsequent analysis glean the opinions from 15 senior investors globally, and according to their latest gathering the probability of the global economy entering recession has grown from 0% in 2018 to 10% in Q1 2019. Furthermore, the probability of the global economy entering sub-trend growth has grown from 25% in Q4 2018 to 35% in Q1 2019.

"Growth is slowing but it is not collapsing," says Ramon Maronilla, investment specialist, global fixed income, currency and commodities at J.P. Morgan Asset Management, noting that despite signs of restricted expansion, overall growth remains solid.

But risk factors still need a wary eye. "We are seeing more volatility and uncertainty heading towards 2019," he adds. Maronilla then points out three major risks on the horizon, namely: the escalation of the global trade war, the market perception of Fed overtightening, and a severe slowdown in China.

"For 2019, we expect the global growth momentum to go from great to good," says Tai Hui, chief market strategies Asia at J.P. Morgan Asset Management.

China is clearly an important market to watch, especially for those who invest heavily in Asian equities. "We do believe that the Chinese government does have ample tools across administrative, monetary, and fiscal policy measures, but the slowdown in China is still a risk we need to pay attention to," says Maronilla.

Given the market outlook, for those investors who are trying to build a stronger portfolio in 2019, Hui says the key themes of asset allocation are agility, income and resilience.

"Agility means it is not about market timing, but taking a more flexible approach to economic signals. This year, numbers such as income, dividend and coupon play a greater role when we are expecting greater market volatility and resilience. For any investment strategy, the way we manage volatility is as important as how we generate returns," he says.

For investors tracking Asia equities, being distinctive among different markets is quite important after a tough year in 2018.

The outlook for Asian equities is generally positive for 2019. Despite the downgrade of earnings growth, the price-to-book ratio (P/B ratio) is roughly about 1.4 to 1.5 at the moment, according to Ayaz Ebrahim, co-head of Asia Pacific regional team, emerging market and Asia Pacific equities team at J.P. Morgan Asset Management. "Historically, in the past 20 years, when you are trading at 1.4 or 1.5 times in the region, the probability of making positive returns in the next 12 months is very high," he says.

China is still overweight in J.P. Morgan Asset Management's strategy despite the earnings downgrade. "We are seeing earnings downgrade in the Chinese equity market. We see earnings growth at about 13% to 14% for the coming year, and at the moment, visibility into 2020 is still looking like double digits," says Ebrahim.

"We also overweigh Indonesia. That is a country that where we have been structurally overweighed for a while. We have had our volatility there. Indonesia is behind China in terms of development, but there are similarities: infrastructure spending is taking place and consumerism is rising," says Ebrahim.

India is underweighted because of valuations. "Compared to other places, such as China, valuation in India is expensive. But from a fundamental standpoint, there are some great companies, especially in the private sector," says Ebrahim, who also revealed that J.P. Morgan has been holding stocks in the banking, insurance and consumer sectors in India for a number of years.

Regarding the fixed income market, high-yield bonds might be worth watching in 2019 despite the late cycle.

"One of our best ideas in 2019 is the US and European high-yield bonds. A number of our clients are conservative about investing in high-yield bonds this late in the cycle, but as we go through our fundamental research, we are seeing most high-yield companies have not exhibited the irresponsible late cycle behaviour that you would typically expect at this stage. We are seeing more of that on the investment grade bonds space," says Maronilla, noting that the valuation of high yields has been fairly attractive.