Industry concerns about a global economic slowdown or even an outright recession in 2020 appear wide off the mark. It will be a bumpy road for financial markets and we should expect some stock market volatility but supportive macro-economic policies, signs of a warming up in US-China relations, progress in Brexit negotiations and a strong Tory majority in the UK parliament are all hugely supportive.
We expect a pick-up in economic activity in 2020; extending one of the longest ever periods of expansion. Whilst risks remain – uncertainty over geopolitical tensions and a potential thawing of US-China relations in phase 2 of the deal – it seems somewhat improbable that a US President seeking re-election will allow markets to tumble in 2020.
What should we expect in 2020?
Whilst valuations are not cheap there are pockets of opportunity that investors can exploit. We think there are good investment opportunities in the UK in small and mid-cap stocks. Due to uncertainties surrounding BREXIT fund managers have underweighted UK equities in their portfolios with investors steering clear since the 2016 referendum. With Brexit pressures easing we expect weightings to be normalised which should be extremely supportive for equities. We favour small caps because they are more domestically focused and less vulnerable than large caps to currency movements.
We expect European equities to benefit from easier monetary conditions, quantitative easing and a de-escalation of a trade war which is so harmful to its manufacturing base.
We are very positive on Emerging Market equities which trade at a significant discount to developed markets due to an easing in UK-China trade tensions, lower US interests and moderate inflationary pressures.
We expect Alternatives to have another strong year in 2020. They protect against market volatility as they are neither as risky as low yielding bonds nor as volatile and sensitive to trade wars as equities. One of our favoured picks within the alternative sector is Renewable Energy.
We continue to rotate towards asset classes with defensive qualities to insulate against any market set back.
We produced double digit positive full year returns last year and we look forward to continue managing portfolios with one eye on reducing downside risk and the other on capturing any upside potential.
For further information please contact our Investment Analyst Libor Necas on Tel: 00 350 200 50982.
