The European Securities and Markets Authority (ESMA), the EU's securities regulator, has published the second Trends, Risks and Vulnerabilities (TRV) report for 2019. The report identifies a deteriorating outlook for the asset management industry and continued very high market risk.

Looking back at 2018, it was a year when European corporate earnings continued to grow, while market volatility was surprisingly high. The volatility was a result of both political noise and the fear of a slowdown in global growth.

According to Christopher Gannatti, Head of Research, WisdomTree, the lesson here for investors is the potential to embrace volatility. Where a rising VIX typically equates to a short-term equity sell-off, EM investors who have used the dips as buying opportunities historically have seen positive results.

Market volatility also played out, as well as the growing share of jumbo deals, usually more sensitive to adverse developments. Amid very supportive conditions for M&A (from the tax reform in particular), weaker deal rationales are also mentioned as a greater source of deal volatility.

With monetary tightening expected, investors will need to consider the sensitivity of their equity portfolio to sovereign bonds and protect it as far as possible through active stock selection and sector allocation.