This is an extraordinary moment for investors. As at the beginning of December, many asset classes have notched up double-digit returns over 2019, with equities hovering close to record highs even as trillions of dollars of bonds offer negative yields.
And yet we cannot dwell too long on the factors that have taken us to this point, as 2020 is likely to be a year of change – from the holders of key posts at major central banks, to the EU leadership, to the US presidency.
At the same time, even though the outlook for the world economy has perked up a little, significant downside risks remain and geopolitical tensions will probably still command investor attention. After all, the trade hostilities and Brexit process are still bubbling away. It is nearly inevitable that the market and macro environment will shift materially, too.
In this outlook, teams from across LGIM examine the opportunities and risks with which investors are presented in this context. Here are some of our conclusions:
- Global growth may ultimately disappoint investors, even as recession fears abate
- The many ways in which the US election could disrupt markets appear under-priced
- Watch the UK for clues to the trajectory of global monetary and fiscal policy
- In equities, growth has outperformed value for 10 years – a style rotation in 2020 could have a significant impact
There are also contributions from our Asset Allocation team, who explain why they have turned cautious on equities on both a tactical- and medium-term view, and from our Solutions team, who outline steps investors can take to make their portfolios more robust.
Drawing all of this together, it is clear that the complexity and interconnected nature of global markets require a research effort across investment styles, regions and asset classes to separate the signals from the noise.
We believe the assessment of environmental, social and governance (ESG) risks and opportunities should also play a crucial part of this process. Indeed, looking ahead to next year, we expect that interest in all things ESG will only grow from investors, policymakers and regulators alike.
Expect to hear more from LGIM on this front in 2020, as we continue to work with clients, peers and policymakers to bring further clarity to an area that can be both exciting and somewhat bewildering. So even though markets appear to underappreciate certain key risks, there are still reasons for investors to be cheerful. With the right approach, we may yet enjoy more extraordinary moments in 2020.
To read our full 2020 Outlook, please click here.