What does 2020 hold? For the fund business, that is a multibillion-dollar question. FTfm asked investment bosses at 10 of the world’s biggest asset managers, overseeing a combined $19tn, to gaze into their crystal ball for their predictions.

Pascal Blanqué

CIO, Amundi Asset ManAgement

© Magali Delporte/Picturetank

What should investors expect?
We don’t expect stellar performance in 2020, but no recession either. This year will see the combination of monetary and fiscal policies driving a further extension of the cycle.

Instead of fearing a recession, investors should curtail their exposure to the anti-globalisation trend and prepare for an extended credit cycle, which will be characterised by mounting risks. Volatile episodes may occur, especially when market expectations of policy delivery become excessive.

For bonds, investors should focus on liquidity and on sustainability of corporate debt levels, as well as looking to emerging markets.

For equities, we expect some derating of expensive defensive sectors, and prefer cyclical value opportunities (especially in Europe) and domestic demand in emerging markets.

Biggest risk?
Deteriorating fundamentals in some pockets of the credit market could potentially trigger a sell-off in a lower market liquidity environment.

Biggest opportunity?
A return to cyclical value in Europe, where investors could also benefit from reduced political risk. At the extreme end, gold should benefit if an economic recession becomes a real possibility.

Quirkiest prediction?
There is too much pessimism around emerging market local currencies. They could perform much better than expected if the strong dollar comes to an end.

Where will the S&P 500 be at year end?
In a US election year, the S&P 500 tends to perform well, although an economic recession could change that. Trump will do whatever it takes to avoid this. So we expect a positive performance from the US market, a 5-10 per cent gain.

Mike Pyle

global chief investment strategist, BlackRock

© Jerry Goldeberg

What should investors expect?
Modestly firmer economic growth in 2020 — with easy financial conditions and a probable pause in US-China economic tensions giving global trade and manufacturing a chance to recover somewhat.

Recession risks look limited. This leaves us modestly pro-risk and tactically preferring cyclical exposures such as Japanese and emerging market equities as well as emerging market bonds and high yield debt.

The quality factor often performs well in late cycle and also has upside exposure to global trade. With the Federal Reserve on hold, US Treasuries provide capacity to cushion equity volatility, unlike the eurozone area and Japanese bonds.

Biggest risk?
A re-escalation and broadening in trade tensions would threaten our constructive economic and market views — especially on cyclical stocks. Longer-term inflation risks look under-appreciated given their potential to undermine portfolio diversification.

Biggest opportunity?
Emerging market debt, especially local currency, provides a strong income given valuations, continued monetary easing by EM central banks, firmer global growth and a stable dollar.

Quirkiest prediction?
A global backlash against the scale and reach of tech will increasingly prompt a regulatory response — and threaten profit growth of the companies that have led equity markets higher.

Where will the S&P 500 be at year end?
Headwinds from US election uncertainty as well as late-cycle profit pressures mean that US stocks will perform more inline with our modestly positive view on global equities after 2019 outperformance.

Andrew McCaffery

global CIO, Fidelity International

© Fidelity

What should investors expect?
In recent years, the US has led the global economy and capital markets, buoyed by either supportive monetary and fiscal policy, or both.

Looking to 2020, expectations are that we see more of the same, but circumstances could conspire to generate a moment of reckoning, with a distinct capital shift away from the US towards areas such as emerging markets.

The latter is more likely, driven by a combination of US electoral concerns and the potential for a weaker dollar.

Much depends on US corporate and consumer confidence, but non-US real assets with income-generating opportunities could provide a useful way to navigate this environment.

Biggest risk?
There appear to be a number of significant risks, but one big risk is who wins the Democratic nomination for US president, and how this feeds concerns among chief executives and chief financial officers about policy. The dynamism of private and public capital raising and deployment could suffer badly through 2020.

Biggest opportunity?
A turn away from dollar strength and the consequences of this. Another is Japan’s improvements in corporate governance and gradual restructuring of the Japanese economy. The recent tax hike may, for the first time in 20 years, create better conditions for investors. If people genuinely start to believe that prices aren’t going down, Japan will be on a different path to almost every other large economy.

Quirkiest prediction?
Growth in generating new forms of income, such as an expansion of the forms of royalty style payments, moving from pharmaceuticals to more esoteric forms.

Where will the S&P 500 be at year end?
If we see concern build in the US, and a capital rotation out of US and growth equities, into other equity markets and value stocks, this could be meaningful. This could lead to the S&P dropping below 2,700.

Joanna Munro

global CIO, HSBC Asset Management

© Dave Vickers

What should investors expect? 
Slow and steady economic growth, low inflation, accommodative policy and single-digit profit growth.

Downside risks such as a global growth recession look more remote given recent signs of a “cyclical bottoming” and following the pivot to looser monetary and fiscal policy last year.

Uncertainty is likely to remain the central feature of the macro environment, but that doesn’t mean investors should rush to a very defensive asset allocation — this can be a costly strategy, as 2019 has shown.

Biggest risk? 
The crucial issue to monitor will be developments on the trade front, particularly in terms of US-China trade negotiations, which has been a key driver of investor and economic confidence this year.

Biggest opportunity? 
Market pricing still looks relatively attractive for some risky asset classes. Taking the carry in selected fixed income (Asia high yield) and equity (Europe, Japan) markets makes sense.

Quirkiest prediction?
Central banks expanding their mandates to incorporate climate change policies. The ECB has already signalled it is moving in this direction and other central banks could soon follow.

Where will the S&P 500 be at year end?
Given the relatively favourable baseline macro outlook and scope for recovery in earnings growth, US stocks could have another good year. US presidential election years typically support US equities.

Sonja Laud

CIO, Legal & General Investment Management

© Andy Lane

What should investors expect?
2020 is likely to be a year of change — from holders of key posts at major central banks to the EU leadership and the US presidency.

Even though the outlook for the world economy has perked up a little, significant downside risks remain and geopolitical tensions will probably still command investor attention.

After all, the trade hostilities and Brexit process are still bubbling away. Given this, it will be hard to repeat the tremendous returns we saw across many asset classes in 2019. That said, there are still significant upside opportunities if you can separate signal from noise.

Biggest risk?
The significant number of over-leveraged corporates and the potential volume of “fallen angel” bond downgrades to junk status if there is an economic downturn in 2020.

Biggest opportunity?
In a world awash with negative yielding bonds, emerging market debt still offers an attractive yield. There will be noise, but emerging markets no longer have a monopoly on geopolitical risk.

Quirkiest prediction?
Significant volatility driven by climate scenario modelling. This includes stressing portfolios for bad outcomes, and searching out companies that will help us reach good outcomes.

Where will the S&P 500 be at year end?
How global equity markets perform in 2020 will very much reflect the various macro scenarios, particularly relating to geopolitical change.

Brett Lewthwaite

CIO, Macquarie Investment Management

© Picasa

What should investors expect?
More global easing measures by central banks will be required in 2020. Otherwise underwhelming growth risks causing a tightening of credit markets. This would increase the risk that this very long period of expansion may be coming to an end.

Biggest risk?
The signals emanating from the bond market are correct. The pronounced move lower in global bond yields and period of flattening to inversion of the US Treasury curve during 2019 have flashed warning signals that warrant close watching.

Biggest opportunity?
A stabilisation of global growth and continued central bank support providing the backdrop to invest in higher risk sectors, in particular emerging markets.

Quirkiest prediction?
More monetary easing by central banks will continue to move [interest rates] further and further away from “normal” and result in lower and lower bond yields.

Where will the S&P 500 be at year end?
Similar to fixed income, we expect equity performance to be driven by the outcome of whether the chase for yield and continued central bank support can continue to extend the cycle and support financial markets.

Overall, it is a healthy environment for stocks in 2020 with “slow growth, not no growth” in the US. There are plenty of factors that could negatively affect the markets, including the 2020 US presidential election, geopolitical flare-ups or natural disasters.

Consequently, there is certainly the potential for a 10-15 per cent stock market pullback for any number of reasons at any time during 2020, and investors should recognise that possibility.

Johanna Kyrklund

group chief investment officer, Schroders

What should investors expect?
We expect any rise in bond yields to be contained by the absence of an emphatic economic recovery, low inflation and the institutional demand for yield as pension funds seek to de-risk.

This provides support for equity valuations although a further re-rating of stocks from here is hard to see. On corporate earnings, there is the potential for improvement outside the US as cyclical indicators stabilise.

We therefore expect equities to grind higher and see significant opportunities under the surface to benefit from the reduced risk of a recession in 2020.

Biggest risk?
We are more worried about growth disappointing than inflation picking up. As a result, government bonds are a potentially attractive hedge for investors.

Biggest opportunity?
Given the outperformance of defensive equities in 2019 and central bank stimulus, more cyclical exposures can be given the benefit of doubt and have pent-up return potential.

Quirkiest prediction? 
Politics might be interesting but they won’t matter for markets.

Where will the S&P 500 be at year end?
3,250

Akiyoshi Nagashima

CIO, Sumitomo Mitsui Trust Asset Management

© Sumitomo

What should investors expect?
Despite negative factors like the US-China trade war, the global economy has bottomed out partly due to monetary easing measures by the Fed and other authorities.

US and China have agreed on Phase 1 [of a trade deal] and this will greatly improve corporate confidence in capital investment. The global economy will then head toward a steady recovery.

Japan will implement large-scale economic measures to mitigate risks of a pullback in demand after the consumption tax hike and the trade war.

These include investments in response to environmental disasters as well as upfront investment for post 5G, which will provide a tailwind for the stock market. 

Biggest risk?
Increasing volatility, like 2016, depending on the outcome of the US elections and the potential decline of the Chinese economy due to the trade war moving into a high-tech cold war.

Biggest opportunity? 
Investing in stocks. Investment money will return to the stock market as the global economy recovers. High-tech cold war could be a concern, but 5G stocks will drive the market.

Quirkiest prediction? 
Long-term interest rates could rise unexpectedly, triggered by global economic recovery and aggressive fiscal policies. There are potential risks in proxy bond investments, such as minimum volatility strategies.

Where will the S&P 500 be year end?
Above 3,500 points. If the S&P 500 aims for 3,500 points, the Nikkei 225 will aim for 25,000 yen, providing the high-tech cold war doesn’t worsen and long-term interest rates do not rise sharply.

Mark Haefele

CIO, UBS Global Wealth Management

What should investors expect?
Continued slow global growth, but a year of choices in which the US election, US-China trade negotiations and developments in fiscal and monetary policy will be key.

Volatility, yes, but domestic and consumer focused sectors and markets will prove more stable than those exposed to investment and overseas spending.

In fixed income, middle of the road investments like emerging market bonds look better than ultra-low-yielding government debt and increasingly risky high yield credit.

I also expect the US dollar to weaken as US growth and rates converge with the rest of the world, and gold to outperform other commodities.

Biggest risk?
If the trade conflict does not de-escalate and tariffs begin to bite US consumers, who so far have been a bastion of stability in an uncertain world.

Biggest opportunity?
Getting ahead of the shifts in consumer preferences and government policy favouring sustainable investments and products that will dominate the next decade. Even the ECB is talking about it.

Quirkiest prediction?
The US and China are the source of global trade uncertainty, but their own markets are relatively well insulated from its effects. We like US and China stocks versus those in the eurozone.

Where will the S&P 500 be at year end?
About 3,200

Greg Davis

CIO, Vanguard

© ©2017 Carlos Alejandro Photography

What should investors expect?
The geopolitical uncertainty and unpredictable policymaking that have marked the past few years will likely continue in 2020, and as a result, we expect global economic growth to continue to slow.

In the US, that means GDP growth somewhere between 0.5 per cent and 1.5 per cent and one or two more interest rate cuts by the Fed. China and Europe will also slow down, and the more trade-sensitive emerging markets will be hit harder.

While it might not materialise in 2020, the likelihood of a large drawdown for equities and other risky assets remains high. In any instance, look for increased volatility.

Biggest risk?
The biggest risk to growth is policy uncertainty; the biggest risk to our views is a sudden, credible and lasting resolution to the US-China trade dispute.

Biggest opportunity?
Long-term focus and disciplined asset allocation are more important than ever. Under that lens, international equities are an important part of smart portfolio construction, particularly given their relatively modest valuations.

Quirkiest prediction?
No significant reversal of trade tensions. Nor do we expect that policymaking will become more predictable.

Where will the S&P 500 be at 2020 year end?
Difficult to predict, but current valuations give some pause on there being significant upside in US equities, particularly given the uncertainty.

 

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