December arrives with a cascade of economic forecasts under the arm that will mark the strategies of investors for the next twelve months
If at the end of 2018 the horizon was drawn very black, after the worst omens have not been fulfilled, the world has not fallen into recession and, in addition, the bags have ended in highs, the scenario that analysts draw for 2020 is more hopeful, while still showing a high dose of risk.
And is that the great ‘melons’ that had a year ago are still open. The first and fundamental one is the trade war between the United States and China, to which an additional variable is added, such as the November presidential elections that will undoubtedly mark the roadmap of the negotiations.
“There will continue to be a lot of volatility in 2020 and a lot of aggressive language around the agreement,” they say in this regard from IG. “The recent announcement of peace is more a ceasefire than a lasting decision and the elections in the United States will undoubtedly be a fundamental element on the board, since China is not interested in Donald Trump remaining as president.” In fact, from the analysis firm, they do not rule out that the negotiations are postponed until after the elections.
Something more optimistic is shown from UBS, which considers that the last announcement on a trade agreement probably marks a “point of maximum tariffs” and “could constitute the beginning of a series of gradual reductions that could release the greater bullish market potential of variable income ”.
Therefore, given a moderation of bearish risks for the manufacturing sector and global consumer confidence, the investment bank’s response is “to increase exposure to risky assets in the portfolios.”
What has changed the consensus is in their perception of the global economy. It has gone from the impending recession to the slowdown. In this sense, the main hypothesis of Jeff Schulze, strategy director of ClearBridge, a subsidiary of Legg Mason, is that of “a slowdown in the framework of the current economic expansion” and, although it foresees that the contraction of the manufacturing sector will be accentuated As the trade war undermines business confidence and reduces investment, “consumption should remain at levels solid enough to avoid a recession.”
In addition, although volatility will continue to be high, from the manager they rule out market declines next year. In fact, according to Schulze, “in the last 19 cycles of presidential elections in the US, equities have only suffered losses twice in the 12 months prior to the day of the elections and have yielded an average return of 8%.
Brexit loses strength
As for Brexit, which has been another of the foci of uncertainty in this 2019, since Julius Baer consider that the result of the elections of last December 12 “does not offer much respite to the markets, while many uncertainties are going to keep next year.” However, this focus has lost weight in the forecasts of analysts, more focused on the commercial war, the electoral campaign in the US or the future of monetary policy.
In fact, central banks also have a place of honour in the reports of experts, while, in general, it was the great error of the forecasts of a year ago when they predicted the end of the ‘free money’.
In this regard, from Schroders, they point out that “despite the cuts in rates that have occurred so far in 2019, the US is one of the few developed economies with a margin to continue lowering them”, while in other areas where rates Of interest they are already in negative, will be the fiscal measures and the increase of the cost the levers to stimulate growth.
This is the case of the Eurozone, where the attention will be put on the first year of Christine Lagarde at the head of the European Central Bank after its predecessor, Mario Draghi, has already marked the road map towards a greater prominence of the Governments in the matter of fiscal policy.
“With the change of presidency at the ECB we believe that the institution will turn politically for the better,” they explain from A Global Flexible Sicav. “Lagarde is still a great economic policy and its great mission will be to convince and negotiate a common fiscal policy, taking advantage of the supposed current German vulnerability.”
However, in general terms, experts recommend diversification to protect against volatility but, for example, UBS refines and within the variable income recommends “opt for quality and dividends in a context of end of cycle with low returns”; As for fixed income, they suggest an intermediate position in view of the very low yields of the safest debt and the increased credit risk. “We are inclined to the sovereign debt of emerging markets, selected securities in the crossover segment in Europe and higher quality issuers within the high-yield Asian debt,” they say.
On the other hand, Schroders goes one step further and points towards the European stock exchanges, while “they are still cheaper than their American counterparts in general” and considers that “cyclical actions seem attractive, as long as they have been undervalued and, Especially the banking. We especially like European banks with strong franchises and a decent market share”.