Santander Wealth Management, which includes the private banking and asset management business, estimates that there will be economic deceleration in 2020 but with no sign of a risk of recession in the short term.
Forecasts are for increased global growth of 3%, as long as geopolitical uncertainties are clarified. The GDP is expected to increase by 2% in the US, by 1.1% in the eurozone and 1.7% in Spain, whereas the Chinese economy will decelerate to rates below 6% and GDPs in Latin America will be above 2%.
Four factors will influence the direction of markets in 2020: the credibility and capacity of central banks, the resolution of geo-strategic conflicts (Brexit and trade tensions between the US and China), political stability with a special focus on the upcoming elections in the US and the growth of business profits. In this last case, an increase of 4% is expected next year as a result of tightening margins.
“Our base scenario for the next twelve months involves an environment of low growth, but not recession, which may give rise to some specific opportunities," says Víctor Matarranz, senior executive vice president of Santander Wealth Management & Insurance.
In this context, and with interest rates at historic lows, Santander Wealth Management considers that, "The incentive to look for alternatives in assets involving a certain amount of risk will always be present, as we have seen in recent quarters."
And it underscores that there are opportunities for investment in bonds (emerging and US$ curve fixed income), equity (Germany, UK, defensive or domestic sectors in the US and emerging markets such as Brazil and India) and some alternative markets (infrastructures, private debt and private equity) in addition to traditional investment, for the correct investor profile.
As regards fixed income, the low returns offered by debt after this year’s rally advise positions with lots of diversification in relation to duration, issuance credit, sectors and geographies and currencies. The report says that, within European bonds, corporate bonds offer "a little more value as their leverage indicators are reasonable" and investment in fixed income in emerging markets "still has value to offer" in a controlled geopolitical risk environment.
Equities are still assets with a better return/risk ratio. "There is still potential for revaluation of the stock markets insofar as a trade agreement in relation to minimum levels is reached, economic and profit deceleration is established, interest rates continue to be low and there is a minimum of geopolitical visibility," the report adds. Europe has been left behind and is still 17% below the maximums achieved in the last cycle, which could indicate better performance next year. “The possibility of arbitrage towards equity by the debt markets and the low positioning of assets is a bolster for European markets," says the report. Therefore, it is essential that profit forecasts for 2020 maintain positive growth, business margins are established and the rise in labour costs is compensated by revenue.
Adding ESG (environmental, social and corporate governance) criteria to portfolios is another premise for next year, as this type of investment is expected to add a competitive advantage in the medium term. “It is investing in the future, with the added assurance that we are investing in business with a high probability of leading the economy in the coming years," concludes the report.
Another three recommendations from the report are to avoid excessive liquidity positions (the real cost and opportunity of this positioning may be elevated, given that the low-interest environment may last for some time), not to pursue profitability and to keep investing at an appropriate risk level and increase the diversification of portfolios to reduce risk.
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