Politics is going to be key in 2020, and we expect the influence of populism, as well as the ongoing debate over US/China trade tariffs, to remain firmly on the agenda. Overall, we believe geopolitical risk levels will be just as high this year as they were in 2019.
On the economic front, a key mood shift looks likely on monetary policy across some markets as its underlying ability to manipulate or produce stronger economic growth appears to have faded. At the same time, we look to be facing an economic slowdown, although we anticipate global markets will probably avoid a full-blown recession in 2020.
In policy terms, we believe some governments are more likely to look towards fiscal stimulus, rather than relying on central banks to turn things around in the year ahead. While markets with the scope to cut interest rates –such as the US – should have a degree of flexibility, we anticipate other markets such as Europe and Japan will most likely look to some form of fiscal stimulus if economic weakness persists.
Depending on where money is spent, fiscal stimulus has the potential to boost specific sectors and will benefit some, but not all, companies. From a currency perspective, we expect to see new opportunities emerge with the change of fiscal and monetary mix providing scope for currencies to diverge. This, in turn, could bring new opportunities for global bond investors who are able to take advantage of wider currency movements.
Paul Brain, fixed-income leader, Newton.