Global Perspectives - February 2020

Global equities – where to from here?
Februari 2020

Risk Disclaimer 

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

Equity investors have enjoyed a period of extraordinary returns following the Global Financial Crisis. Will the bull market charge on further still?

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.

Risk Disclaimer 

The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.

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.

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.

Use our handy glossary to look up any technical jargon you are unfamiliar with.

The rapid spread of coronavirus raises risks of widespread economicdisruption which could push major economies into recession.

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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.

Asset Allocation

Summary Our asset allocation tables contain forward-looking assessments, which can be identified by the use of terminology such as “may”, “should”, “expect”, “anticipate”, “outlook”, “project”, “estimate”, “intend”, “continue” or “believe”. These do not constitute investment advice or recommendations to buy or sell investments and you should not place undue reliance on such returns and statements, as actual returns and results could differ materially due to various risks and uncertainties.

Any investment involves risk as market conditions and trends fluctuate. Accordingly, investment values may fall as well as rise and investors may receive back less than originally invested.

Overweight Neutral Underweight

Equities Nominal Rates

Spread Investments


US Equities
Europe (ex-UK) Equities
Emerging Market Equities

Asia Pacific Equities
Japan Equities

UK Equities
Canadian Equities

Emerging Market Debt
US Treasuries
US Breakeven

European High Yield
Eurozone Peripheral Sovereign Bonds
US Investment Grade
German Bonds
European Investment Grade
UK Breakeven

US High Yield


Europe (ex-UK) Asia Pacific
  • Good run in Q4 but underperforming year to date, which is largely due to emerging markets/China exposure.
  • European equities still under-invested and we believe emerging market exposure will end up being a tailwind once Coronavirus fears recede.
  • Potential for some positive news flow on the fiscal stimulus front.
  • The short-term outlook is increasingly negative, with earnings revised down, business confidence falling the the RBA not cutting as expected.
  • Although the RBA seem overly optimistic, Australian growth and inflation is set to pick up in the medium term.
  • The impact from the bushfires, the Western Australia cyclone and Coronavirus have hit Australian equities and the Australian dollar is at its weakest level since the financial crisis.
UK North America
  • Fiscal policy is set to boost GDP this year.
  • Sterling is the biggest driver (inverse correlation) for FTSE returns.
  • Likely to underperform if bond yields move higher and global equities increase further.
  • The economy is relatively solid and supported by monetary and fiscal policy. Trade picture is looking better with US/ China Phase 1 deal.
  • Earnings in mini-recession, though expected to recover this year. Expectations for the year look high.
  • US election a key tail risk if a progressive candidate (ie. Sanders) were to become nominee.
Emerging Markets Japan
  • Coronavirus fears have dominated short-term sentiment, although the consensus narrative is 'buy the dip'.
  • The fundamental 12-18 month picture remains unchanged, pending a worsening of the virus trajectory.
  • We are averaging over next month a sound option given expectations of a v-shaped recovery versus the uncertainty of timing surrounding peak contagion.
  • Valuations appear extremely cheap.
  • Relative earnings revisions are improving.
  • Correlation to the currency remains strong.


Investment Grade Credit Emerging Market Debt
  • Valuations are relatively expensive.
  • Economic indicators mildly support IG credit, however valuations and fundamentals limit upside.
  • Emerging market debt is marginally attractive and slightly cheaper compared to developed market corporates. A dovish Fed should provide support for spreads at these levels.
  • Low global inflation and dovish developed market central banks provide ample space for emerging market central banks to turn stimulative.
  • The risk is that idiosyncratic concerns spill over but out expectation for a weakening dollar should provide support.
Sovereign Bonds Global High Yield Bonds
  • There is more evidence of a manufacturing recovery, but overall global growth is sluggish.
  • Overall, growth is very modestly supportive but valuation and poor liquidity leads is to prefer equity over credit.
  • High yield bonds remain susceptible to an increase in volatility.
  • We see more downside risks, especially as economic data slows.
Index-Linked Bonds
  • Limited slack in the UK economy is leading to higher wage growth and inflation, but the base effects from currency moves should see realised UK inflation continue to fall.

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