As institutional investors near the end of 2019, their minds inevitably turn to how the next year will unfold – and what they need to do, tactically, to prepare for it.
While the world’s economy has slowed, it’s still growing at over 3%. The US looks a bit late-late cycle at this point, but equally there are no imminent signs of a recession, either. And while interest rates will play an important role, they appear to be static or even downwards trending.
That may not please fixed income investors, who are desperate for yield, but it will likely suit Donald Trump. The US president might (provided he dodges his own impeachment and removal) get to enjoy at least decent economic growth until the presidential election in November 2020.
Elsewhere, uncertainties abound. The UK is undergoing its own general election, with a Conservative party slim majority appearing the most likely outcome as AsianInvestor went to print. If that is the result, Brexit will finally take place at the end of January 2020. Chaos may well follow. It would likely be a fairly hard Brexit, which would probably topple the world’s sixth largest economy into a recession, and potentially drag the eurozone (or at least major parts of it like Germany) down with it.
The US-China trade war is an open question too. Recent signs indicate an ‘imminent deal’ will be signed. But it’s not the first time the Trump administration has built up hopes of a deal that’s great for the US, only for them to be dashed.
Still, as the world enters 2020 (and his re-election campaign truly kicks off) the pressure will rise on Trump to notch up another mark in the ‘win’ tally. Expect some form of deal in the first quarter at the latest. It’s possible that would eke out a further bit of momentum to maintain the US’s stock market at what appear to be overly lofty valuations.
Then again, as we report on page 15, the open sore that are the Hong Kong protests could topple all that delicately calibrated trade craft, particularly if China’s increasingly bellicose rhetoric turns into a physical clampdown.
Other concerns to watch out for include more extreme weather events. They would underline the increasing immediacy a climate crisis, and potentially offering momentum for more urgent legislative change. If that were to occur, it could begin to make fossil fuel companies a much less pleasant prospect (even if the planned $1.7 trillion IPO of Saudi Arabia’s state oil company Aramco suggests otherwise).
As we say on page 50, asset owners need to work out how best to react to extreme weather events, because they look set to become increasingly costly on their investments (as well as damaging for the world as a whole).
These are just some of the possibilities to look out for in 2020. It will be an eventful year.