The global economy at the crossroads

UBP
By December 5, 2019 11:43

The global economy at the crossroads

Dear Reader,

Following the shock caused by near-20% declines during the fourth quarter of 2018, global equity markets rebounded strongly in early 2019 as the US Federal Reserve brought its rate hikes to an end in the first quarter before shifting to outright easing later in the year.

We expected the world’s economies to move out of sync, and we were proved correct as the US remained resilient while other major economies suffered sustained slowdowns verging on recession by year-end. The increase in trade tensions that we predicted in 2018 came to pass, and the resulting uncertainty dragged down global growth expectations throughout the year. In response, the world’s central banks adopted monetary easing measures, pushing bond yields to test, and in some cases fall below, their previous historical lows. Despite uncertainty about economic growth and persistent earnings downgrades throughout the year, equities outpaced bonds in 2019 as expected.

Our risk-focused approach – via structured products and hedge funds – across portfolios served us well in 2019 as the rise in volatility in all asset classes was even greater than we had predicted in our cautious forecasts. Thematically, our focus on secular trends remained valuable, while our emphasis on the emerging field of impact investing proved timely.

Looking ahead to next year, central banks look poised to continue stabilising global credit markets at least until fiscal authorities around the world can begin increasing government spending, reducing the policy burden on their monetary counterparts. The time lags involved in enacting these new spending programs should continue to push volatility higher, especially in early 2020. As fiscal stimulus emerges, perhaps first in continental Europe, risks for bond investors are likely to increase. Within bond portfolios, investors should take a risk-focused capital-preservation approach rather than the quest for yield seen in recent years. Moreover, with government bond yields near historical lows, investors should look further afield and diversify more broadly among “risk-off” assets – including gold and safe-haven currencies – in the new year.

Central-bank easing and balance-sheet expansion should help contain equity market weakness until fiscal stimulus is applied more forcefully in late 2020. Until then, long–short hedge fund exposure should remain a key equity risk management tool in the year ahead.

2020 should continue to see socially-responsible investing catching on globally. Impact investing trends, which spread across developed markets in 2019, should take root just as firmly in emerging markets as the new decade begins. Moreover, broader ESG investing methods should gain in prominence, allowing investors to customise portfolios to match not only their investment objectives but also their personal values.

We examine all of these issues and more in the pages that follow. As ever, we look forward to working alongside you to develop an investment portfolio that meets your expectations and needs.

MICHAëL LOK

Group CIO and Co-CEO UBP Asset Management

UBP
By December 5, 2019 11:43

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