After a year of double-digit equity returns and strong performance for bonds, investment experts from across the Natixis organisation are keeping an eye on the uncertainties around the US presidential election cycle and elevated asset prices, according to the Natixis Strategist 2020 Outlook, published by the Natixis Investment Institute.
The report explores the findings from a survey of 24 strategists, economists and portfolio managers representing Natixis Investment Managers, its affiliated investment managers and Natixis Corporate & Investment Banking, and provides insight into what investors might expect in 2020 and beyond.
Risk: What could possibly go wrong? Or right?
The Natixis Investment Managers Midyear Strategist Outlook cited Brexit as the most likely downside risk, but strategists have shifted their focus to growing concerns around the US presidential election. Geopolitical conflict still ranks in the top three risks, followed by the likelihood of a US, European and/or global recession. Similarly, apart from a soft or no Brexit scenario, Natixis strategists don’t expect much upside from external market catalysts.
Mixed opinions towards US presidential election
Though survey respondents don’t expect obvious shocks to markets, projections as to who will win the election in November 2020 are evenly divided, with half expecting Donald Trump’s re-election and the other half expecting a new candidate to triumph.
“What’s most remarkable is just how clearly the survey results are split down the middle,” said David Lafferty, chief market strategist at Natixis Investment Managers. “It seems as though every optimistic outlook is balanced out by a more pessimistic one. Even though next year’s US presidential election is on the minds of strategists, it remains a murky situation with no obvious outcome in sight.”
Asset class outlook
Compared with Natixis’ midyear outlook, respondents were overall more optimistic across assets in general, with bullish/bearish scores higher on 15 of 19 asset classes. That said, even the most bullish scores were only modestly above “neutral” and expectations remain muted.
With hopes for a softer Brexit, sentiment towards UK stocks improved with significant upgrades to UK and European equities. The biggest gainers across the report’s bullish/bearish ranking of 20 asset classes were by far UK equities, eurozone large equities and non-US developed equities. Emerging markets equity is still beloved, moving to the number one spot.
Respondents were relatively neutral on US equities. On average, respondents set a year-end 2020 target forecast for the S&P 500 at 3,074, implying little change in the coming year (-0.2 per cent) compared with its level when the survey was in field. But opinions were perfectly split: 12 strategists call for higher returns and 12 call for lower. The highest upside projections implied a 9.9 per cent gain, while the lowest projections implied an 11.2 per cent loss.
The road to 2030
Looking a decade ahead, the most important investment and economic trends include policy concerns, the ability to navigate inflation, rates and central bank policy. According to respondents, another upcoming trend will be climate change and its effects on the global economy. Respondents said that there are a few potential investment opportunities correlated to a changing climate, such as the effects of technology and productivity to raise potential growth. However, strategists say trends in populism and deglobalisation could undermine economic progress in the next decade.
Mr Lafferty added, “The aggregated view of our strategists shows the challenge many investors will face as the world enters the new decade: economic growth that is positive but hardly above stall speed, valuations that are elevated but not exorbitant and geopolitical events that could either boost or sap market confidence.”
