State Street Global Advisors, the asset management business of
State Street Corporation (NYSE: STT) has today published its 2020
Global Market Outlook, predicting recession will be avoided through
a continuation of growth, subject to the global economy
“sidestepping substantial risks” to maintain momentum.
“2020 is not a year of recession,” said Rick Lacaille, global
chief investment officer at State Street Global Advisors. “We
expect the global economic recovery to continue into 2020 against a
backdrop of continued monetary easing, policy shifts and persistent
pockets of resilience. Low inflation, robust consumer spending and
a relatively strong global services sector combine to propel the
cycle forwards. There are clear risk factors but overall, we expect
world real GDP growth of 3.4 percent, up from our projection of 3.2
percent in 2019.”
State Street Global Advisors’ forecasts predict sufficient
pillars of strength to carry global growth forwards. Investors can
expect to find pockets of resilience and opportunity in this
environment, despite a macro investment landscape that is expected
to throw up significant challenges.
Risk factors increasingly prominent
Risks are expected to emerge on a number of fronts, notably
increasing geopolitical tensions and lingering policy uncertainty.
In this climate, choosing where to invest will matter, with focus
falling on select risk assets. With this in mind, four key areas
are likely to coalesce as key questions for investors:
- Geopolitics: What will be the outcome with respect to
Brexit, trade tensions, Iran, US impeachment proceedings, and
more?
- Economic resilience: Can consumers sustain strong
spending without fundamental resolution?
- Policy: Will the policy response extend beyond monetary
intervention to include fiscal stimulus?
- Structural reform: Will the pace of reform pick up in
emerging markets and in Europe?
Positive outcomes in these areas would offer notable boosts to
Europe and emerging markets even more than the US, which has less
room for improvement.
Equities offer value in North America but risks arise in
other territories
Into 2020, central bank support is expected to warrant an
overweight position to equities, although this outlook may be
tempered by increasingly stretched valuations, compounded by
ongoing trade risk and persistent bouts of market volatility.
“Robust domestic demand and healthy consumer spending data lend
weight to US equities, where recent monetary policy accommodation
has increased risk appetite and reduced the risk of recession“,
commented Lori Heinel, deputy global chief investment officer for
State Street Global Advisors. “By contrast, European equities,
while more attractively valued, remain vulnerable to persistent
political and structural uncertainties. Shifts in fiscal policy and
greater political clarity around Brexit, as well as movement on
much needed structural reform, could unlock value in European
equities.”
Long term growth potential in emerging market (EM) and Asia
Pacific equities
“Despite current headwinds, over the longer term, value may be
realized in EM equities, although investors may require a bit of
patience”, said Kevin Anderson, head of investments in the Asia
Pacific region at State Street Global Advisors. “Catalysts to value
creation in emerging markets include a pickup in flows as the EM
benchmark expands, modulation in US-China trade tensions and
increasing allocation to EM by global funds, alongside improving
fundamentals in domestic markets and longer-term GDP growth due to
demographics and structural reforms. As we await those catalysts,
it’s important to note that currently EM equity returns are
relatively widely dispersed which suggests opportunity for careful
stock selection.”
Volatility expected as lower rates in fixed income
markets persist
Low rates in fixed income markets are widely anticipated. Rates
outside of Europe and Japan offer a premium, but the level of
premium has tripped lower in recent months, a trend that broadly
looks set to continue into 2020. However, further factors may come
into play, creating opportunities in this space. Accommodative
monetary policy, including policy rate moves and potential ongoing
quantitative easing should keep longer term rates anchored and
support improved GDP growth.
This, in turn, should see a favourable backdrop for corporate
issuers with stable ratings expected in this market. Corporate bond
holders may also expect to see additional benefits through improved
market technicals with issuances trending lower and ECB purchases
likely to drive prices up. The risk of a less favorable economic
outcome remains a risk and investors may wish to be discerning with
their allocations to lower grade credit options.
Within EM, Chinese government bonds warrant particular
consideration, as they offer both yield and diversification
benefits, and their addition to the EM bond benchmark in 2020 is
likely to result in substantial flows.
Currency and climate risk are key additional
considerations
Geopolitical risks stand as key currency drivers in 2020.
Ongoing Brexit uncertainties into the new year continue to generate
risks for European investors. While volatility itself is relatively
tame, investors should be wary of complacency – stretched
valuations signal the potential for big moves ahead. The US dollar
is expensive but is awaiting a catalyst for reversion, potentially
presented in the form of a cessation of trade tensions.
Increasingly investors are focusing on longer-term thematic risk
drivers, key among them being climate risk and the potential impact
to company resilience. “We continue to view climate risk as a key
consideration embedded into virtually all market segments and
industries”, said Lacaille. “Climate change poses risks for
financial markets as they attempt to digest climate’s impact on
economic growth on society and on the global energy mix”.
To see State Street Global Advisors’ full 2019 Mid-Year Global
Market Outlook content, visit ssga.com/GMO.
About State Street Global Advisors
For four decades, State Street Global Advisors has served the
world’s governments, institutions and financial advisors. With a
rigorous, risk-aware approach built on research, analysis and
market-tested experience, we build from a breadth of active and
index strategies to create cost-effective solutions. As stewards,
we help portfolio companies see that what is fair for people and
sustainable for the planet can deliver long-term performance. And,
as pioneers in index, ETF, and ESG investing, we are always
inventing new ways to invest. As a result, we have become the
world’s third largest asset manager with nearly US $2.95 trillion*
under our care.
* This figure is presented as of September 30, 2019 and includes
approximately $64 billion of assets with respect to SPDR products
for which State Street Global Advisors Funds Distributors, LLC
(SSGA FD) acts solely as the marketing agent. SSGA FD and State
Street Global Advisors are affiliated.
Important Risk Information:
Because of their narrow focus, sector funds tend to be more
volatile than funds that diversify across many sectors and
companies. Equity securities may fluctuate in value in response to
the activities of individual companies and general market and
economic conditions. Non-diversified funds that focus on a
relatively small number of securities tend to be more volatile than
diversified funds and the market as a whole. Passively managed
funds hold a range of securities that, in the aggregate,
approximates the full Index in terms of key risk factors and other
characteristics. This may cause the fund to experience tracking
errors relative to performance of the index.
https://www.ssga.com/global/en/our-insights/state-street-global-advisors-worldwide-entities.html
Investing involves risk including the risk of loss of
principal.
All material has been obtained from sources believed to be
reliable. There is no representation or warranty as to the accuracy
of the information and State Street shall have no liability for
decisions based on such information.
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Web: www.SSGA.com
Expiration date: 12/31/2020
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