The global economy should perform better in 2020, underpinned by a US-China trade truce and lower interest rates.
- We recently upgraded our 2020 global growth forecast to 2.6%, due to prospects of a "phase one" US-china trade deal and lower US interest rates.
- US interest rate cuts have contributed to some of the most favorable borrowing conditions in a decade, even as US consumers remain well supported by full employment.
- A US-China trade truce would boost the prospects for the Eurozone and emerging markets, although we see only limited action from European governments to support growth.
Stock market volatility is likely to increase and stock selection will become more important as global uncertainty continues, and the US bull market shows early signs of exhaustion.
- Political tensions, such as the US-China trade war and Brexit, will remain in the forefront, with poor sentiment undermining global capital spending and growth.
- There is a wider than average disparity between sectors offering perceived safety and stability (such as utilities, real estate, and consumer staples), and those exposed to global trade. Earnings expectations in unloved sectors, such as industrials, are low, giving scope for positive surprise.
- Amid the noise of markets, we believe global themes such as climate change, energy transition, sustainability, disruption, and innovative healthcare will become more prevalent.
Signs of consumer stress mean securitized credit investors should be especially alert to quality and liquidity in the coming year.
- With a record number of global bonds carrying negative yields, and policy accommodation to remain high, we expect demand for securitized credit to remain strong.
- Securitized credit issuance has been slower and yields are still more appealing than in other credit areas.
- We view the US—more so than the UK or Europe—as having the most attractive fundamentals in the consumer lending, residential housing, and real-estate lending markets.
Why there is reason to be optimistic on the outlook for emerging market equities in 2020.
- We expect an acceleration in economic growth for emerging markets (EM) in 2020.
- There is potential for moderate US dollar weakness; this generally equates to EM currency appreciation and is positive both for financial conditions in EM, and for local earnings translation into dollars.
- Uncertainty stemming from the US-China trade conflict, soft economic growth in China, and global challenges are likely to persist.
Important Risks: Investing involves risk, including the possible loss of principal. • Fixed income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. • U.S. Treasury securities are backed by the full faith and credit of the U.S. government as to the timely payment of principal and interest. • Investments in high-yield (“junk”) bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities. • Risk assets have a significant degree of price volatility. ● Foreign investments may be more volatile and less liquid than U.S. investments and are subject to the risk of currency fluctuations and adverse political and economic developments. These risks may be greater for investments in emerging markets.
The views expressed herein are those of Schroders Investment Management (Schroders), are for informational purposes only, and are subject to change based on prevailing market, economic, and other conditions. The views expressed may not reflect the opinions of Hartford Funds or any other sub-adviser to our funds. They should not be construed as research or investment advice nor should they be considered an offer or solicitation to buy or sell any security. This information is current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Schroders or Hartford Funds.