State Street Global Advisors Global Market Outlook 2020 – “The Only Way Out Is Through”
“2020 is not a year of recession,” said
State Street Global Advisors’ forecasts predict sufficient pillars of strength to carry global growth forwards. Investors can expect to find pockets of resilience and opportunity in this environment, despite a macro investment landscape that is expected to throw up significant challenges.
Risk factors increasingly prominent
Risks are expected to emerge on a number of fronts, notably increasing geopolitical tensions and lingering policy uncertainty. In this climate, choosing where to invest will matter, with focus falling on select risk assets. With this in mind, four key areas are likely to coalesce as key questions for investors:
Geopolitics: What will be the outcome with respect to Brexit, trade tensions,
Iran, US impeachment proceedings, and more?
- Economic resilience: Can consumers sustain strong spending without fundamental resolution?
- Policy: Will the policy response extend beyond monetary intervention to include fiscal stimulus?
Structural reform: Will the pace of reform pick up in emerging markets and in
Positive outcomes in these areas would offer notable boosts to
Equities offer value in
Into 2020, central bank support is expected to warrant an overweight position to equities, although this outlook may be tempered by increasingly stretched valuations, compounded by ongoing trade risk and persistent bouts of market volatility.
“Robust domestic demand and healthy consumer spending data lend weight to US equities, where recent monetary policy accommodation has increased risk appetite and reduced the risk of recession“, commented
Long term growth potential in emerging market (EM) and
“Despite current headwinds, over the longer term, value may be realized in EM equities, although investors may require a bit of patience”, said
Volatility expected as lower rates in fixed income markets persist
Low rates in fixed income markets are widely anticipated. Rates outside of
This, in turn, should see a favourable backdrop for corporate issuers with stable ratings expected in this market. Corporate bond holders may also expect to see additional benefits through improved market technicals with issuances trending lower and ECB purchases likely to drive prices up. The risk of a less favorable economic outcome remains a risk and investors may wish to be discerning with their allocations to lower grade credit options.
Within EM, Chinese government bonds warrant particular consideration, as they offer both yield and diversification benefits, and their addition to the EM bond benchmark in 2020 is likely to result in substantial flows.
Currency and climate risk are key additional considerations
Geopolitical risks stand as key currency drivers in 2020. Ongoing Brexit uncertainties into the new year continue to generate risks for European investors. While volatility itself is relatively tame, investors should be wary of complacency – stretched valuations signal the potential for big moves ahead. The US dollar is expensive but is awaiting a catalyst for reversion, potentially presented in the form of a cessation of trade tensions.
Increasingly investors are focusing on longer-term thematic risk drivers, key among them being climate risk and the potential impact to company resilience. “We continue to view climate risk as a key consideration embedded into virtually all market segments and industries”, said Lacaille. “Climate change poses risks for financial markets as they attempt to digest climate’s impact on economic growth on society and on the global energy mix”.
To see State Street Global Advisors’ full 2019 Mid-Year Global Market Outlook content, visit ssga.com/GMO.
For four decades,
* This figure is presented as of
Important Risk Information:
Because of their narrow focus, sector funds tend to be more volatile than funds that diversify across many sectors and companies. Equity securities may fluctuate in value in response to the activities of individual companies and general market and economic conditions. Non-diversified funds that focus on a relatively small number of securities tend to be more volatile than diversified funds and the market as a whole. Passively managed funds hold a range of securities that, in the aggregate, approximates the full Index in terms of key risk factors and other characteristics. This may cause the fund to experience tracking errors relative to performance of the index.
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