2019 seemed to be a trying year for investors with the trade wars between the largest economic powers, continued uncertainty over Brexit and fear of general economic uncertainty. However looking back at the market performance in almost every sector – equity, bond markets, and currencies – 2019 was a good year for investors. The US equity markets alone posted an average gain of over 28% over the last year, a far cry from the dismal performance of 2018. These gains can be largely attributed to the policy shift by the central banks, especially the Federal Reserve. Furthermore, as the year drew to a close, the US and China finally seemed to have come to an agreement on their trade terms, providing the markets with some temporary stability. But, what are the markets expecting in the year ahead?
Most analysts and financial institutions are not expecting the same level of growth to continue in 2020. A survey of the largest financial institutions globally shows that while most agree that global recession will not be a concern in 2020, the growth in the markets may not continue at the same pace as it did in the previous year. The economic risk will continue to remain a concern for most along with the expected repercussions of the prolonged US-China trade war, as well as the general consensus that the Dollar will weaken. Analysts also expect monetary policy easing in the emerging markets to continue. In Europe, the focus is expected to remain on monetary policy easing by the ECB as well as economic data out of Europe’s largest economies.
What should investors do?
Over the coming year, most financial institutions are recommending that investors should focus on rebalancing their portfolios as riskier assets are more likely to perform well this year. Investors should look to make the most of opportunities instead of focusing on certain asset classes or regions. Equities, in general, are expected to out-perform other asset classes this year along with REITs and corporate bonds. The weakening Dollar would also provide an opportunity for Emerging Markets to recover and perform well. Emerging market currencies such as the Indian Rupee, Ruble and Mexican Peso are likely to yield positive returns.
Analysts and Investors will be looking forward to a few key points during the year. The US Presidential elections due to be held in November will drive market expectations on trade, taxation policies and even interest rates with mounting pressure on the Federal Reserve by the current President. Markets will also look forward to policy announcements by major central banks as markets expect a pause in rate changes by the Federal Reserve, at least for the first half of 2020. Finally, despite the end of year agreement between the US and China with phase one of the deal, the risk due to trade war remains. Trade disruptions between the US and Europe are also likely to continue, with the US expected to levy new tariffs on food, industrial product and luxury clothes on the European Union.
Aishani Tawakley, CFA