At this time of year, investors are often called upon to share their thoughts about the next 12 months in the markets. This year, we decided to mix it up a bit by asking three of our favourite experts into the studio at the same time to debate the outlook for 2020.
Merian’s Richard Buxton, James Thomson from Rathbones and our own Ayesha Akbar can always be counted on to have interesting views and they excelled themselves in our new video - dubbed 2020 Foresight, of course - which you can watch here.
It was a simple format. First, I asked all three to offer a 30 second ‘elevator pitch’ of what they expected to be the big driver of markets. I was relieved that they all came up with something different and interested that, even after nearly 11 years of rising markets, they all found reasons to be cheerful.
For James Thomson, manager of the Rathbone Global Opportunities Fund, next year will be more of the same - he expects the US to continue leading the pack. The reason? That’s where the growth is. America’s ‘rock star’ companies continue to provide the best hunting ground for investment ideas, in his opinion. It’s why his global fund is two-thirds invested in US stocks.
Ayesha Akbar, manager of the Fidelity Select 50 Balanced Fund, is also bullish but she thinks the winner next year will be China. She believes the painful but necessary deleveraging of the Chinese economy has improved the outlook in the world’s second economy and hopes that a resolution of the Trade War will provide a further tailwind for Chinese shares.
As for Richard Buxton, it’s all about the UK. He’s looking for a Brexit Bounce in 2020 as the uncertainty of the past three and half years is finally lifted by an expected Conservative victory in the general election, leading to an exit from the EU by the end of January.
After the quick-fire pitches, we dug deeper into three topics.
First up, we picked up on Buxton’s optimism about the UK. He built on his argument by predicting the end of Britain’s pariah status among international investors, consumer relief, fiscal spending and, in time, the return of business investment too. Both Thomson and Akbar could see the case for the UK but were less enthusiastic - ‘I’m warming to the UK but not yet at boiling point’ was Thomson’s assessment.
The conversation then turned to the US and, in particular, the impact of trade tensions in the run up to next November’s Presidential election. Thomson made the point that in 18 of the last 20 Presidential cycles, the year running up to an election has been a positive one for investors. He sees that continuing as the world is ‘sociologically sick but economically sound’. Akbar noted that while markets have been correlated with sentiment about trade, in practice it is less influential on the real economy than is widely understood.
Thomson did warn, however, that trade remains the biggest headline risk to markets. He was speaking before this week’s trade-related wobble, so his words were quickly prescient, but he thinks that both China and US have a shared interest in coming to some kind of deal in the year ahead.
Finally, we talked about the big market shift this year, between the growth and value investment styles. For Buxton, the rotation to value has legs as a recovering economy helps cyclical shares. Akbar agreed but thought a sustainable shift would require a change in the relationship between long and short bond yields. Typically, the strong economy that favours value shares is reflected in higher long bond yields relative to shorter-term ones than we currently see (in the jargon, a steep yield curve). Thomson, despite being a growth investor himself, thought that value deserved its moment in the sun, with cyclical value shares cheaper compared with their growth counterparts than at any point in the past 30 years. He did caution, however, against counting the growth style out in the absence of a booming economy.
Important information: The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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