Learn more about market trends Investment Outlook 2020. Resilience after all.

Investment Outlook 2020. Resilience after all.

Unforeseen and surprising events have shaped 2019, and we have little doubt that they will impact the world in 2020 as well. In light of such uncertainty, it is of utmost importance for investors to build resilient portfolios.

Even if the US-China trade war eases and Brexit uncertainty diminishes, the year 2020 is unlikely to be entirely smooth sailing: a polarized US presidential campaign, margin pressure, high corporate debt, and fewer interest rate cuts by the major central banks – not to mention unexpected political developments – are likely to sporadically test investor nerves.

Overall, however, we believe that the global economy and risk assets will continue to show considerable resilience in the face of these challenges. This is the message that the title of this year’s publication, Resilience after all, is intended to capture.

A recession is unlikely in light of ongoing monetary policy support, ample credit, some fiscal easing and low oil prices.

While we expect rather subdued economic growth in 2020 and returns that are generally lower than in 2019, a serious market downturn or even financial crisis seems unlikely to us. We observe a number of imbalances in various economies and sectors, but none of them seems serious enough to trigger such a crisis. Conversely, technological progress remains in full force and, importantly, policy makers will continue to provide support. 

Credit Suisse House View in short

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
London

Global economy: UK 
Still all about Brexit

Growth:

Assuming a smooth Brexit process, our central expectation is that the UK grows somewhat more strongly in 2020 than in 2019. A Conservative majority would allow the UK to leave the European Union (EU) with a deal, while a Labour government (in a majority or coalition) would open the door to a second referendum. A hung parliament could produce deadlock and more uncertainty. While a nodeal Brexit is unlikely, in our view, such a scenario would cause a significant recession, with a decline in real GDP of 1% to 2% even if the Bank of England (BoE) eases monetary policy and the government loosens fiscal policy in response.

What to watch:

The BoE’s waitand- watch approach is likely to continue while Brexit uncertainty remains high. If the UK leaves the EU with a deal or if Brexit is canceled, there would be considerable upside to corporate investment and overall growth. The BoE might then begin hiking interest rates in the course of 2020.

Our Investment Outlook lays out the key elements of the Credit Suisse House View for 2020. We have strived to provide a consistent and well-structured guide across the most important asset classes, markets and sub-segments. It suggests that investors who hold well-diversified portfolios, tilted toward areas of extra return, should continue to garner healthy returns. Furthermore, sustainability is increasingly relevant for investors, as it has already become a matter of great importance for voters and consumers around the world.