Market Outlook 2020: A balancing act

 Standard Chartered’s Wealth Management Advisory released its market outlook for the year ahead, which provides the view that financial markets are likely to face a balancing act in 2020. Against a backdrop of stabilising growth and supportive policymakers, equities – led by the US and Euro area – are expected to outperform bonds, within which Emerging Market bonds should outperform Developed Market bonds.

Steve Brice, Chief Investment Strategist at Standard Chartered Private Bank, explained: “As major central banks have already eased significantly, we believe they are likely to either leave policy as is or possibly ease a little further. The focus is likely to shift to fiscal policy where government spending in both major emerging and developed markets could turn increasingly supportive of growth. This will help equities outperform bonds.”

Alexis Calla, Global Head of Investment Strategy and Advisory at Standard Chartered Private Bank, said: “We remain on watch should positive factors recede as 2020 matures, including the US Presidential election in November. Despite being positive on risky assets given our expectations of a stabilised economic growth, these exposures should be taken within a balanced, well-diversified investment allocation, and we continue to see gold as an attractive long-term counterweight.”

Below is an overview of the Global Investment Committee’s views across key asset class:

• Bonds – Strong performance in 2019 across both government and corporate bonds means they start 2020 with a lower yield and more expensive valuations than a year ago, leading us to expect lower, but still positive total returns in 2020. We prefer Emerging Market bonds over Developed Market bonds, across both government and corporate categories.
• Equity – The backdrop for global equities in 2020 remains positive, with Euro area equities the most preferred in the year ahead. Both Euro area banks and US technology are amongst our preferred sectors.
• FX – We believe the USD is peaking after trending higher since early 2018, and will begin a broad-based downtrend. The EUR and GBP are likely to be the biggest beneficiaries on the back of fading US economic exceptionalism, narrowing economic growth and interest rate differentials as well as political uncertainty shifting from Europe to the US Presidential election.
• Multi-Asset – We add risk asset exposure moderately to global/Asia-focused balanced and global multi-asset income allocations, given our central scenario of stabilising global growth and subdued inflation in support of pro-growth assets, and low yields and accommodative monetary policy globally to cushion income assets.

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