IN BRIEF

  • The economic map for 2020 is far from clear. The early months of the year may see a small reprieve in manufacturing activity, but overall global growth is likely to remain constrained by geopolitical uncertainty.
  • Risk assets had an optimistic 2019, but stagnating earnings growth means valuations now look less supportive. Given pressure on margins, we struggle to see a significant reacceleration in earnings growth in 2020.
  • Central banks are likely to remain a key pillar of market support, given their demonstrated willingness to push deeper into uncharted policy territory to keep the expansion going.
  • Against this backdrop, we favour a regionally neutral, defensive equity allocation. Government bonds still have a role to play as insurance, despite low yields, but we believe investors should also consider other diversifiers, such as infrastructure and macro funds.
  • Given the binary nature of some of the political risks, investors may wish to consider some allocation to assets in emerging Asia that are likely to benefit if trade uncertainty resolves.
  • Inflation appears to be off the cards for now, but any resurgence would likely upset the price of both stocks and bonds, so real assets could provide a useful portfolio buffer.
  • We expect the focus on sustainability to continue to grow, with potential regulatory and policy responses having wide-ranging investment implications.

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