By: Graham Wainer
Following a challenging year in 2018, when equity markets fell sharply, the opposite was true for 2019.
Despite increased geopolitical uncertainty and a slowing global economy, most equity markets are up more than 20% for the year. The US continues to lead, with the S&P 500 index up 31.5%* - the 13th best year on record (since 1928). Please note: returns are in US dollar terms and past performance is not a guide to future performance.
The natural conclusion might be that the economy is booming, corporate earnings are accelerating and investor sentiment is ebullient. Earnings growth, however, was broadly flat for the year and economic growth has slowed. As the cycle enters a record 11th year, we offer three core views.
Financial conditions have loosened following coordinated central bank easing and collapsing bond yields.
Led by China (where the downturn originated) we are starting to see signs of stabilisation and recovery in the manufacturing sector after two years of slowdown.
Recent developments mean that key growth headwinds - namely the US-China trade war and Brexit - should diminish.
The combination of an economic slowdown and multiple geopolitical uncertainties means that we enter 2020 with an air of caution amongst investors. This contrasts with late 2017, which preceded a sharp rise in market volatility.
Market trends over the past decade have resulted in a stark polarisation between investments offering either ‘value’ or ‘safety’.
The dominance of the US market, led by mega-cap technology, and ‘growth’ stocks more broadly, is unlikely to be as prevalent in the 2020s as the prior decade.
Environmental sustainability, social welfare and corporate governance (ESG)
2019 saw ESG investing continue its rise to the top of the agenda. Our recently launched Global Sustainable Investment Portfolios focus on this theme.
ESG investing should continue to grow in popularity in the 2020s. This trend has the potential to be a catalyst for recent market leaders, particularly mega-cap technology, to face a tougher road ahead.
Private Capital
Private capital remains a key allocation of our multi-asset strategy for investors with a suitably long timeframe and tolerance for illiquidity.
The Stonehage Fleming Private Capital Programme focuses on mid-market buyout and growth equity strategies. For investors in our 2016-2019 funds, we are already seeing positive results and are pleased to announce the launch of our 2020 fund this month with a strong pipeline of private equity opportunities.
Our philosophy
We remain focused on identifying talented investment managers and conducting rigorous due diligence into their positioning. Investing conditions can change rapidly; we continue to monitor economic, market and geopolitical developments closely to ensure portfolios are positioned accordingly.
More articles by Graham.
Disclaimer: This article has been prepared for information only. The opinions and views expressed on any third party are for information purposes only, and are subject to change without notice. It is not intended as promotional material, an offer to sell nor a solicitation to buy investments or services. We do not intend for this information to constitute advice and it should not be relied on as such to enter into a transaction or for any investment decision. Whilst every effort is made to ensure that the information provided is accurate and up to date, some of the information may be rendered inaccurate in the future due to any changes. © Copyright Stonehage Fleming Investment Management 2020. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission.