Macro
– Policy and trade uncertainty are weighing on growth. Catalysts for change could come in the form of a resolution in US-China trade talks and an improvement in manufacturing activity, giving rise to cautious optimism.
– Central banks go lower for longer. But the impact won’t be felt until early 2020. Whether interest rate cuts are enough to offset the negative impact of higher tariffs and slower growth remains to be seen.
– Recession in 2020? It will depend on the consumer. In the US, it’s a tale of two economies: consumer strength should continue to offset the manufacturing slowdown caused by trade and policy uncertainty.
Equity
– Company fundamentals matter most. Whether investors are looking for growth or income, or both, company-specific factors like pricing power and credit quality are key in determining long-term outcomes.
– US equity investors can do well in election years, but patience is required. We have analysed every US election since 1932 and found that while primary seasons are volatile, markets have made solid gains afterward. It may be better to stay invested than sit on the sidelines.
– Solid returns from Europe, Japan and emerging markets – what could be next? Changes in policy and corporate governance standards could boost productivity in Japan, while investors could find relative value opportunities in European equities. In emerging markets, it is company-specific factors that are increasingly driving returns.
Fixed income
– Easy monetary policy is supportive of bonds markets, but caution is warranted. Rich valuations, coupled with macro-economic and political uncertainty suggest taking a balanced stance with cautious risk exposures could be appropriate.
– With US credit expensive, consider complements to high yield. If you’re comfortable with some volatility, emerging markets bonds offer similar income potential to high yield – often with lower correlation to equities.
– Emerging market debt – attractive compensation for risks. Easing idiosyncratic risks and accommodative monetary policy globally are providing
