Global Market Perspective - Q1 2020
Global Market Perspective - Q1 2020
All the major asset classes ended 2019 on a positive note; equities rallied particularly strongly, especially growth stocks. Part of the reason last year was so robust was the rebound from the awful fourth quarter of 2018. Despite the deterioration in global trade and growth expectations, investors started 2019 relatively optimistic about an US-China trade deal. By spring, it became apparent that both sides were still far apart, and markets with relatively high exposure to global trade such as Japanese and emerging markets equities were the laggards for the rest of the year. Meanwhile, the easing of monetary policy by central banks not only led to a re-rating in risk assets but also spurred gains in government bonds. As the year drew to a close, equities received a further boost from the agreement of the “Phase One” deal and the dollar weakened.
While the US-China trade talks took central stage in 2019, there were plenty of other political events keeping investors vigilant over the year. In the US, shortly after the Democrats took over the House of Representatives in the 2018 mid-term elections, President Trump became only the third president to be impeached. Across the Atlantic, an extension to Brexit was granted but Theresa May was replaced as Prime Minister by Boris Johnson. The winter general election in the UK resulted in a landslide victory for the Conservative party, which means Johnson can now deliver Brexit by the end of January. In comparison, it has been a relatively quiet year for the eurozone although political risk returned to Italy and two elections in Spain could see far left Unidas Podemos in government (see 2019 Review on page 13 of the document below).
As we head into 2020, the profits outlook remains difficult given margin pressures. Moreover, equity markets already appear to be pricing in an economic rebound. In the absence of a significant liquidity impulse and further re-rating, returns are likely to be more modest compared to 2019 (see strategy note on page 24). An additional concern for investors is the rise in leverage in the corporate sector in the US and we take a closer look at the health of the corporate sector through the lens of credit markets (see research note on page 28).
In terms of asset allocation, we are positive on equities and credit. We have also increased our exposure to more cyclical markets such as Japan and the eurozone. This is in recognition of the significant loosening of monetary policy which has helped to underpin market valuations and led to some cyclical stabilisation. Sovereign bonds continue to offer little value relative to equities. Against this backdrop, we have downgraded government bonds to neutral and remain positive on gold as a hedge in the portfolio against a weaker growth outcome as flagged by our economic risk scenarios.
The full Global Market Perspective is available below.
- Monthly markets review - July 2021
- Emerging Europe: does the rally still have legs?
- Why is digital infrastructure so important for real estate investing?
- What are the risks in high yield real estate debt?
- Can a long short fund be sustainable?
- What does China’s stock market meltdown mean for investors?
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.