2020 Annual Outlook

Looking Beyond the U.S.

Conditions that have favored the U.S. are eroding, while risks that
have held back the rest of the world may be dissipating.

Central banks have, once again, begun a synchronised easing cycle. There is a near-unified commitment by central banks globally to keep rates low -- and in many cases negative -- for the foreseeable future.  That was largely in response to a deteriorating growth outlook in the U.S., led by increased trade tensions in May.  Chinese stimulus policies, up until recently, had been too measured to be effective in supporting global growth.  

As a result, U.S. assets outperformed; equities and bonds performed well, and the U.S. dollar was resilient relative to other currencies especially in emerging markets.  While global growth is undoubtedly slowing and the IMF recently downgraded growth to 3% for 2019, the lowest level since the Global Financial Crisis (GFC), that does not necessarily mean a recession is imminent. 

In Q3 2019, China adopted broader stimulus measures, both fiscal and monetary, which combined with accommodative monetary policy and easier financial conditions globally may support renewed economic momentum.  Additionally, the two primary tail risk events, Brexit and U.S.-China tensions, are potentially dissipating and will soon be either behind us or diminished in impact. 

As a result, “U.S. exceptionalism” may wane.  The environment would become negative for the USD.  It is possible, with improved economic momentum, to see a cyclical recovery and reflation theme take hold.  Emerging market assets may finally start to outperform, and EM currencies would outperform more defensive developed market currencies.  

Additionally, cyclical and value-driven equities would outperform.  This is an out-of-consensus view that would be supported by positioning as it is under-owned in investors’ portfolios that have been focused on growth and low volatility, defensive sectors recently.  Early September 2019 hinted at how powerful a reversal in long-held positioning could be on certain segments in the market

Other risks, primarily political in nature, also support ROW (i.e. rest of world) vs. the U.S.  The impeachment fight could lead to volatility in financial markets and the 2020 election cycle will really heat up and the potential for left-leaning candidates to take the Democratic nomination could further pressure markets.  Being able to capitalise on volatility in 2020 will be increasingly important to navigate uncertain political, economic and market outcomes.

 

Growth vs. Value: Growth of $100
Source: Bloomberg as of Sept. 30, 2019. Past performance is no guarantee of future results. Indexes are unmanaged and not available for direct investment. Index returns do not include fees or sales changes. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment. Growth is represented by the S&P 500 Growth Index.   Value is represented by the S&P 500 Value Index.   

Additional Outlooks
Brandywine Global
Growth in the Slow Lane


Clarion Partners
Cautious Optimism Amid Change


ClearBridge Investments
Consumers Hold the Key

 

Martin Currie
Shifting the Global Balance


QS Investors
Uncertainty on the Horizon


RARE Infrastructure
How Infrastructure Is Evolving


Royce Investment Partners
Positive Signs for Small-Caps

Western Asset
Resilient Growth, Despite Risks

Emerging markets (EM) are nations with social or business activity in the process of rapid growth and industrialization. These nations are sometimes also referred to as developing or less developed countries. 

The International Monetary Fund (IMF) is an international organization of various member countries, established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements. 

The financial crisis of 2007–2008, also known as the Global Financial crisis (GFC) and the 2008 financial crisis, was a severe worldwide economic crisis considered by many economists to have been the most serious financial crisis since the Great Depression of the 1930s, to which it is often compared. 

"Brexit" is a shorthand term referring to the UK vote to exit the European Union. 

“USD” refers to the U.S. dollar, the national currency of the United States. 

U.S., or American exceptionalism refers to the idea that the history of the United States is inherently different from those of other nations and has conferred special advantages in its historical development.   

The S&P Growth Index is an unmanaged index consisting of growth stocks within the S&P 500 Index, an unmanaged index of U.S. large-cap stocks. 

The S&P Value Index is an unmanaged index consisting of value stocks within the S&P 500 Index, an unmanaged index of U.S. large-cap stocks. 

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