Uncertainties have piled on in the past year – Brexit delays, trade tensions, recession chatter, impeachment escalations and oil-market disruptions to name a few. With political fears driving risks in particular markets, this is a good time for investors to reassess the value of global diversification.
Investor anxiety could carry over and see a more elevated FX volatility backdrop in 2020. However, with several key uncertainties directly impacting the US, the USD may not be the safe haven choice in 2020, with JPY and gold more likely beneficiaries.
Lower-for-longer interest rates, global trade tensions, heightened geopolitical rifts coupled with record central bank and investor buying activity, are all supportive of gold in the medium term. On the flip side, the outlook for oil looks more bearish with strong supply growth.
With more than 30 central banks cutting interest rates and core non-US rates near historical lows, the hunt for yield is likely to persist. Opportunities remain in selective markets, such as US Investment Grade corporates and USD-denominated Emerging Market Debt.
The end of a bull market is often characterized by near-euphoric risk sentiment. However a closer look reveals that the “bust” that many expect has not been preceded by a typical “boom”. Citi analysts are overweight global equities, with equity total returns of 6-8% seen in the coming year.
Projections for global growth have drifted down in 2019 as a reflection of trade headwinds, though domestic resilience is showing more positive signs. Developed Market economies could slow to below-trend growth, while Emerging Markets could see a moderate rebound.
