Five global themes for 2020
|Looking back to a year ago, we had success with our four global themes: a US soft landing over a hard landing, an inflection point in central bank policy, trade and political uncertainty to moderate, and valuation extremes (then relatively cheap) to moderate.
Looking into 2020, we introduce five global themes:
Theme #1: An advanced economy upside growth surprise: lower rates, reduced uncertainty, inventory cycles, strong consumer fundamentals and US election window-dressing could drive upside growth and earnings surprises.
Theme #2: Central banks driving extreme positive liquidity conditions: Fed, ECB and major EM central banks have significantly eased policy. Liquidity conditions are unusually positive, with the bar set high for any tightening.
Theme #3: The presidential election cycle positive, with Hong Kong tail risks: S&P 500 returns have averaged 13.2% in president re-election years since WW2.
Theme #4: Bond risks contained: we expect bonds to price to policy, not fundamentals, containing risks in 2020 given a high bar on Fed action.
Theme #5: Upside risk from an ongoing market melt-up: the above positives plus a swing to fund inflows could drive a melt-up (Figure 1).
Overall, we predict global equity markets to generate moderate returns in 2020, led by ex-US markets, with upside risk from a market melt-up
Investment implications: Three ways investors can play these global themes include: i) the EL&C Baillieu multi-asset funds; ii) a listed blend of ETFs, managed funds and LICs; and iii) select Australian global leaders.
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