Thematic Report

Global Themes 2020 – What to watch for

by Shaun Cochran / Dec 4, 2019

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Global strategy: Need and fear

Chief strategist Adrian Mowat believes the conventional wisdom that risk-hungry investors buy equities while their conservative peers buy bonds is misguided in a post-GFC and post-QE era. With the required rate of return for funds to meet liabilities now higher than available investment-grade and government fixed-income markets, central banks have engineered a financial system that is forcing people to take bigger risks. In a world where choices of attractive assets are limited, investors should prefer the need & fear trade-off between healthy equity-risk premiums and negative-yielding debt.

Global economics: Shallow US recession

Chief economist Eric Fishwick has moved a shallow US recession to his central case as key leading indicators resemble those before the last NBER recession. However, given healthy US balance sheets this will be not be severe, only slowing to 1%. It is against this backdrop that there is a possible Phase 1 trade ‘deal’. With the conclusion unclear, Eric argues that investors shouldn’t expect much: China has only conceded low-hanging fruit. With an increasingly hawkish tone in Washington, markets can expect more turbulence from Sino-US tension in 2020 in theatres not limited to trade.

Global microstrategy: Return to value

Value strategies are poised for a resurgence in 2020 after a dismal 2019. Asian valuations remain near their historic lows relative to developed markets. Top-down uncertainty is tempering enthusiasm for growth and momentum strategies while coinciding with fewer bottom-up earnings cuts, with the possibility of a move to positive revisions helping value.

Global technicals: China consumer emergence

Chief chartist Laurence Balanco sees some improving relative price action. For consumer, a recent breakout from the April-October consolidation pattern was formed after the initial breakout from the late-2018 basing pattern. China internet had a recent breakout from its 12-month basing pattern, which formed after the 50% decline off the early-2018 highs.