The Beauty of Symmetry

Global growth is finding its feet, but a powerful upswing is not around the corner: risks such a Hard Brexit (still!) and the US elections are impediments to a meaningful capex recovery. 2019 was in many ways similar to 2016; but 2020 will not be a repeat of 2017. We expect equity gains to continue, but in a far more muted fashion. 

Highlights:

  • Global growth is finding its feet, but a powerful upswing is not around the corner: risks such a Hard Brexit (still!) and the US elections are impediments to a meaningful capex recovery.
  • 2019 was in many ways similar to 2016; but 2020 will not be a repeat of 2017. We expect equity gains to continue, but in a far more muted fashion.
  • Central banks engineered a stunning risk rally in 2019; they will be less active in 2020. But nascent efforts to make inflation targets more symmetrical will remain a risk-friendly force.
  • Equities are still cheap relative to bonds: the gap between earnings and bond yields is somewhat irresistible.
    At this level of outright valuation, however, the drawdown risk increases; timely hedging will be a focus in
    2020.
  • Avoid ‘risk-free’ bonds, but in that space prefer Treasuries as a hedging instrument. Credit continues to offer superior risk-adjusted returns. Expect the USD pullback initiated in Q4 2019 to continue (good for EM).

Download the full publication below

THE BEAUTY OF SYMMETRY

RELATED INSIGHTS

CHINA’S Q4 GDP GROWTH SURPRISED ON THE UPSIDE, BUT RISKS TO THE OUTLOOK HAVE INCREASED
This morning, China published its Q4 GDP growth alongside with December monthly activity data. Q4 growth accelerated to 6.5% yoy which lifted total 2020 GDP to 2.3%. December real activity data were more mixed. While exports came in strongly, important domestic demand components were a bit unsteady.
COVID-19 FACTS & FIGURES
US President-elect Joe Biden has unveiled a $1.9 trillion stimulus package proposal. Following the recent increase in cases, China has imposed new restrictions and lockdowns in the Hebei province. Canada has implemented new restrictions and a provincewide curfew in Quebec that will last until February 8. German Chancellor Angela Merkel warned that the recent rise in Covid-19 cases could force the country to prolong the nationwide lockdown until April.
EQUITIES: STAY POSITIVE WITH A VALUE-CYCLICAL TILT
Following a monster rally in stocks last autumn, multiples are well above historical averages, but equity investors can count on lingering low yields, tighter credit spreads and increasing central banks’ balance sheets which in turn maintain low the cost of equity and the discount rate of future cash flows.