Home Core views 2020
We expect the US Federal Reserve (Fed) to remain on hold after the third rate cut in October 2019. The European Central Bank (ECB) will also stand pat on rates while pursuing quantitative easing (QE). The Swiss National Bank (SNB) should be able to avoid rate cuts, but may need to continue intervening in the foreign exchange market. Rate cuts should continue in a number of EM.
Returns on most core government bonds are likely to be negative, except in the USA. Tight spreads imply anemic returns for investment grade bonds in developed markets (DM). Expect solid returns on most EM hard currency debt, with strong – albeit volatile – returns in some EM local currency debt, as well as frontier markets. Subordinated financial debt in DM remains attractive.
Against the backdrop of limited earnings growth and flat to higher bond yields, returns in key equity markets are likely to be in the single-digit range. EM equities can recover if the trade war abates, and financial stocks should benefit if yield curves continue to steepen. In a low yield environment, stable-dividend stocks would do well.
Main asset classesMost asset classes showed a strong performance in 2019. Investors should not expect to see this feat repeated in 2020 although financial assets will likely continue to benefit from generally low yields.
Alternative investmentsAlternative investments have become increasingly established as a building block of portfolios, particularly in today’s world of low-for-longer interest rates and yields.
Investment strategy 2020Now that interest rates around the world have reached record lows or slipped into negative territory, even risk-averse investors will need to buy higher-risk assets to generate positive returns.