Investment Trusts

Global equities – where to from here?

Paul Niven, Fund Manager of the F&C Investment Trust, provides an outlook on global equities.
March 2020

Paul Niven

Managing Director, Portfolio Manager and Head of Portfolio Management, Multi Asset Solutions

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Risk Disclaimer

Past performance should not be seen as an indication of future performance.

The value of an investment is dependent on the supply and demand for the trust’s shares rather than its underlying assets. The value of the investment will not be the same as the value of the trust’s underlying assets.

Opinions expressed by individual authors do not necessarily represent those of BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

2019 was the culmination of an exceptionally strong decade for equity markets. By some measures the past 10 years have seen the longest uninterrupted economic expansion in US history and the longest bull market ever. Equity investors have enjoyed a period of extraordinary returns, following the Global Financial Crisis.

So far in 2020, global equities have been subject to volatility from concerns over the spread of coronavirus, as investor sentiment fluctuates between optimism around containment and fears of a full-blown pandemic.

So…where to from here?

We have been of the view that equity markets will remain supported by a reasonable growth backdrop and accommodative policy. The rapid spread of coronavirus raises risks of widespread economic disruption which could push major economies into recession. This, however, is not yet our base case. Investors had recently viewed the dovish moves by the likes of the US Federal Reserve and the European Central Bank positively, considering the reduction of interest rates as warranting higher valuations on future earnings, despite the increased risks.

Risk Disclaimer

Past performance should not be seen as an indication of future performance.

The value of an investment is dependent on the supply and demand for the trust’s shares rather than its underlying assets. The value of the investment will not be the same as the value of the trust’s underlying assets.

Opinions expressed by individual authors do not necessarily represent those of BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

Trade’s all the rage

Noise at the macro and political level continues. With the US and China agreeing a Phase 1 trade deal, a ceasefire in tensions does seem likely for now, but further concrete progress remains uncertain as the coronavirus is currently limiting China’s ability to deliver on new import targets, while Trump has an incentive to appear tough on China during the election – which is a whole other challenge in itself, with potential market volatility ahead.

The détente with China has allowed Donald Trump more time to focus his attention on the trade situation with Europe. Business leaders on both sides feared he would ramp up his aggression here, but in actual fact the president took quite the opposite stance, declaring his expectations of negotiating a deal before the presidential election in November. Talks are under way, with both sides promising to work quickly towards a deal.

Closer to home here in the UK, Boris Johnson’s landslide victory in the general election late last year brought about a marked fall in Brexit uncertainty, and a Brexit deadline passed without extension at the end of January. However, there is still much to be discussed as the UK and EU begin intense negotiations around their future trade relationship, with a deadline of the end of this year for the details to be finalised. Many in the EU believe the UK is being over-ambitious with this deadline, and that Boris should extend it by a year or two. The prime minister must decide by July whether he wants an extension, and so far his answer has been no.

 
The bigger picture

Ultimately, we believe equity markets will continue to deliver reasonable returns for investors until the next economic and earnings downturn. The risks here have risen and the short-term outlook remains mired in uncertainty. While we do not foresee an imminent downturn, investors should prepare for the end of the long bull market.

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