Investment Themes in 2020
In our Investment Themes report in 2019, we noted there was a widening divergence of views on the prospect on the coming year as financial market turbulence suggested deteriorating economic conditions. Trade tensions were just starting to throw a wrench in global growth plans as was concerns over Fed tightening, the fate of Brexit, and U.S. sanctions on Iran and Russia. We were also waiting to see if China would be a help or a hindrance to Emerging Markets.
Fast forward a year and a lot of the same concerns remain prompting our global economics team to ask ‘Is the 2020 outlook half full or half empty?’ They expect global growth to stabilize around 2.7% but the outlook is contingent on how the different tensions that are currently affecting the global economy end up playing out. On balance, they see risks tilted to the downside. Uncertainty is likely to remain broadly high given known unknowns including Brexit delays, trade tensions, recession chatter, impeachment escalation, oil-market disruptions, and geopolitical risks. Additional risks could add to global growth concerns including continued and possibly widening trade tensions, concerns over manufacturing strength, and monetary and fiscal policy actions. Emerging markets continue to struggle for growth as shift towards protectionism creates problems for emerging market economies and China’s switch from an investment-led to a consumption-led economy also causes concern.
In 2020, the role of politics will continue to be a driver or world events and we look at how vox populi — the voice of the people — will persist into the new decade fueled by global discontent. A shortage of affordable housing is exasperating the situation and we look at the issue of the housing crisis and offer some solutions for increasing affordable housing supply.
For the last two years, we have been monitoring the Global Bear Market Checklist to get a sense of when it’s time to stop buying the dips in markets. This year we introduce a checklist for Emerging Markets where we find only 2.5 out of 18 factors are flashing sell vs. just 4 out of 18 in 2019. Keeping with the risk theme, our global commodities team looks at what they see are the seven big risks in global commodities in 2020.
Finally, we look at some sector theme which we think will start to take shape in 2020. With renewable energy continuing to be a focus of many, we look at repowering of onshore wind installations and the efficiency and cost benefits it provides. The concept of ‘flight shaming’ trended in 2019 prodding us to look at alternatives to flying in the leisure, business and government arena. Finally, we look at the semiconductor industry and the development of Extreme Ultra Violet lithography which could extend Moore’s Law and the Chinese continuing evolution of China’s digital payments and finance business.
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