Global outlook: catch 2020

global perspectives

Global outlook: catch 2020

What are the main themes likely to drive the investment landscape in the coming year and beyond? In our outlook for 2020, we consider the central macroeconomic and sustainability steers that we expect to buffet markets, as well as considering the opportunities and risks identified by our investment specialists.

 

Macroeconomic variables: growth, risk, rates

From a macroeconomic perspective, we see a potential catch-22 situation arising as policy, economic and political dilemmas loop between each other.  This could create a more complicated investment landscape for investors to assess.

Our base case assumes a shallow trajectory of global growth in 2020. We do not see a V-shaped recovery in global business investment (capex), despite the likely confirmation of a phase 1 trade deal between the US and China. Risks could emanate from a moderate recession and a potential hard landing over the coming 12 months, but we believe that the likelihood of such risks has fallen lately.

Political risk from elections is a key theme. The US presidential race is likely to tighten as 2020 unfolds, thereby shaping up to be a major risk for US assets, especially if Elizabeth Warren becomes the Democratic front-runner. In the UK, a Brexit deal is likely to pass in January, but another cliff edge Brexit scenario could approach in a year, in our view.

This backdrop creates an environment where real rates are expected to remain low and the European Central Bank delivers potential further easing.  We foresee the search for yield strengthening as a major structural theme because meaningful fiscal easing remains elusive, especially in Europe.

 

Sustainability, central banks and responsible investing

We maintain our core conviction that sustainability will be the most signficant driver of returns. The transition to a sustainable economic model is already firmly under way, and we expect the transition to accelerate to the point where it fundamentally changes our investment universe.

In order to help our clients navigate this changing landscape, we consider a number of salient themes. For instance, climate change will be front and centre of the agenda for policymakers, in our view, and we see further central bank involvement in order to deal with the more extreme climate-driven events unfolding.

The landscape of sustainable finance is likely to continue bridging the gap to a decarbonized world.  Sustainable finance has already grown more diverse in terms of issuers and geographies, and more complex in terms of instruments. Going forward, we see exponential growth in total assets invested according to responsible investment strategies, but highlight that a vast increase in investment levels is still required. Investors could indeed find that sustainability is a key driver of growth in a low-growth world.

 

Key investment views

In order address these themes, our investment specialists highlight how their asset classes are likely to be impacted. In equities, we see a potential comeback in European cyclical stocks, and highlight that sustainability could provide growth opportunities in a low growth world.

Yield enhancement is likely to remain a prominent focal point for fixed income in the year ahead due to the low rate environment.  In corporate bonds, we remain constructive on quality corporate credit. Should volatility increase in equities and risk assets next year, we believe balanced, global convertible bond strategies would stand to benefit. In emerging market credit, we highlight attractive valuations in hard currency markets as part of a selective approach.

Turning to multi-asset portfolios, we favour risk-rebalancing and diversification, and advise actively managing drawdowns as correlation shocks become more frequent.

Trade policy, political risk, low rates and sustainability are likely to act as powerful crosscurrents in the months ahead. Sharing expertise is one way active managers can equip investors to navigate such waters.

 

Click here to download the full document.

Please find key terms in the glossary.

important information.

This document has been issued by Lombard Odier Funds (Europe) S.A. a Luxembourg based public limited company (SA), having its registered office at 291, route d’Arlon, 1150 Luxembourg, authorised and regulated by the CSSF as a Management Company within the meaning of EU Directive 2009/65/EC, as amended; and within the meaning of the EU Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD). The purpose of the Management Company is the creation, promotion, administration, management and the marketing of Luxembourg and foreign UCITS, alternative investment funds ("AIFs") and other regulated funds, collective investment vehicles or other investment vehicles, as well as the offering of portfolio management and investment advisory services.

Lombard Odier Investment Managers (“LOIM”) is a trade name.

This document is provided for information purposes only and does not constitute an offer or a recommendation to purchase or sell any security or service. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This material does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before entering into any transaction, an investor should consider carefully the suitability of a transaction to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. This material contains the opinions of LOIM, as at the date of issue.

Neither this document  nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term "United States Person" shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income.

Source of the figures: Unless otherwise stated, figures are prepared by LOIM.

LOIM does not provide accounting, tax or legal advice.

Although certain information has been obtained from public sources believed to be reliable, without independent verification, we cannot guarantee its accuracy or the completeness of all information available from public sources.

Views and opinions expressed are for informational purposes only and do not constitute a recommendation by LOIM to buy, sell or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change. They should not be construed as investment advice.

For more information on Lombard Odier’s data protection policy, please refer to www.lombardodier.com/privacy-policy

No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient, without Lombard Odier Funds (Europe) S.A prior consent.

©2019 Lombard Odier IM. All rights reserved.