Home Core views 2020

Core views 2020

Geopolitics

Our base case is a de-escalation in the US-China conflict, but uncertainty remains high. The US presidential election campaign is likely to be highly polarized and may affect investor sentiment. European political risks should abate as uncertainty over Brexit subsides.

Geopolitics

Economic growth

Global economic growth is set to remain sluggish with only a minor recovery in industrial production, capital expenditure (capex) and trade. However, a recession is unlikely in light of ongoing monetary policy support, ample credit, some fiscal easing and low oil prices.

Economic growth

Inflation

Inflation looks to remain well below central banks’ 2% target in Europe and Japan, while it should decline in China and other emerging markets (EM). However, inflation is likely to exceed 2% in the USA, at least temporarily.

Inflation

Interest rates

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.

Interest rates

Fixed income

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.

Fixed income

Equities

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.

Equities

Real estate

Most real estate investments should continue to deliver moderately positive returns. We prefer direct real estate where lower interest rates do not yet appear to be fully reflected in the price.

Real estate

Commodities

Barring a major escalation involving Iran and Saudi Arabia, oil prices are likely to continue to stay subdued. Gold looks set to remain supported on the back of extremely low interest rates.

Commodities

Forex

The USD should hold up initially, but the EUR should gain in H2 as a Eurozone recovery takes hold. The CNY could depreciate slightly more vs. the USD on domestic weakness. The GBP would gain strongly on the back of a Brexit resolution. Our base case is for the CHF and JPY to trade sideways.

Forex