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
Growth in the Slow Lane
Cautious Optimism Amid Change
Consumers Hold the Key
Shifting the Global Balance
Uncertainty on the Horizon
How Infrastructure Is Evolving
Royce Investment Partners
Positive Signs for Small-Caps
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.
All investments involve risk, including possible loss of principal.
The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested.
Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.
International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.
Past performance is no guarantee of future results. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice. Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not take into account the particular investment objectives, financial situation or needs of individual investors.
The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Legg Mason or its affiliates or any of their officer or employee of Legg Mason accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Legg Mason. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of, and observe such restrictions (if any).
This material may have been prepared by an advisor or entity affiliated with an entity mentioned below through common control and ownership by Legg Mason, Inc. Unless otherwise noted the “$” (dollar sign) represents U.S. Dollars.
This material is approved for distribution in those countries and to those recipients listed below. Note: this material may not be available in all regions listed.
All investors and eligible counterparties in Europe, the UK, Switzerland:
In Europe (excluding UK and Switzerland), this financial promotion is issued by Legg Mason Investments (Ireland) Limited, registered office 6th Floor, Building Three, Number One Ballsbridge, 126 Pembroke Road, Ballsbridge, Dublin 4, D04 EP27. Registered in Ireland, Company No. 271887. Authorised and regulated by the Central Bank of Ireland.
All Qualified Investors in Switzerland:
In Switzerland, this financial promotion is issued by Legg Mason Investments (Switzerland) GmbH, authorised by the Swiss Financial Market Supervisory Authority FINMA. Investors in Switzerland: The representative in Switzerland is FIRST INDEPENDENT FUND SERVICES LTD., Klausstrasse 33, 8008 Zurich, Switzerland and the paying agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1, 8024 Zurich, Switzerland. Copies of the Articles of Association, the Prospectus, the Key Investor Information documents and the annual and semi-annual reports of the Company may be obtained free of charge from the representative in Switzerland.
All investors in the UK:
In the UK this financial promotion is issued by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorized and regulated by the Financial Conduct Authority. Client Services +44 (0)207 070 7444.
All Investors in Hong Kong and Singapore:
This material is provided by Legg Mason Asset Management Hong Kong Limited in Hong Kong and Legg Mason Asset Management Singapore Pte. Limited (Registration Number (UEN): 200007942R) in Singapore.
This material has not been reviewed by any regulatory authority in Hong Kong or Singapore.
All Investors in the People’s Republic of China ("PRC"):
This material is provided by Legg Mason Asset Management Hong Kong Limited to intended recipients in the PRC. The content of this document is only for Press or the PRC investors investing in the QDII Product offered by PRC’s commercial bank in accordance with the regulation of China Banking Regulatory Commission. Investors should read the offering document prior to any subscription. Please seek advice from PRC’s commercial banks and/or other professional advisors, if necessary. Please note that Legg Mason and its affiliates are the Managers of the offshore funds invested by QDII Products only. Legg Mason and its affiliates are not authorized by any regulatory authority to conduct business or investment activities in China.
This material has not been reviewed by any regulatory authority in the PRC.
Distributors and existing investors in Korea and Distributors in Taiwan:
This material is provided by Legg Mason Asset Management Hong Kong Limited to eligible recipients in Korea and by Legg Mason Investments (Taiwan) Limited (Registration Number: (98) Jin Guan Tou Gu Xin Zi Di 001; Address: Suite E, 55F, Taipei 101 Tower, 7, Xin Yi Road, Section 5, Taipei 110, Taiwan, R.O.C.; Tel: (886) 2-8722 1666) in Taiwan. Legg Mason Investments (Taiwan) Limited operates and manages its business independently.
This material has not been reviewed by any regulatory authority in Korea or Taiwan.
All Investors in the Americas:
This material is provided by Legg Mason Investor Services LLC, a U.S. registered Broker-Dealer, which includes Legg Mason Americas International. Legg Mason Investor Services, LLC, Member FINRA/SIPC, and all entities mentioned are subsidiaries of Legg Mason, Inc.
All Investors in Australia and New Zealand:
This document is issued by Legg Mason Asset Management Australia Limited (ABN 76 004 835 839, AFSL 204827). The information in this document is of a general nature only and is not intended to be, and is not, a complete or definitive statement of matters described in it. It has not been prepared to take into account the investment objectives, financial objectives or particular needs of any particular person.