Tags: headwinds | tailwinds | investors | 2020

What Investors Should Watch Out for in 2020

What Investors Should Watch Out for in 2020

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By Thursday, 02 January 2020 12:05 PM Current | Bio | Archive

A new year and a new decade! 2020 has arrived and may well be a time when investors will receive a host of positive outcomes.

That said, as always, investors need to take advantage of the inevitable opportunities and sidestep the risks in order to procure healthy results.

Of course, there will undoubtedly be headwinds on the way, which will likely impact growth and returns. Indeed, I believe three key headwinds will affect investors in 2020.

First, the ongoing trade war between the U.S. and China. The conflict between the world’s two largest economies has resulted in global growth moving at its slowest pace in over 10 years.

Should talks break down, this could have severe repercussions for U.S. and Chinese businesses, as well as firms across the globe with supply lines and clients in both countries.

If global economic growth decreases further, if talks fail, this would obviously have a negative impact on investor returns.

However, a positive outcome may be on the cards. Earlier this week, U.S. President Trump announced he would sign a long-awaited trade agreement with China on January 15.

It’s predicted that this so-called ‘phase one’ deal will alleviate tensions between both countries.

Trump said the treaty would be signed in Washington with “high level representatives” from China present. He also wrote on Twitter: "At a later date I will be going to Beijing where talks will begin on Phase Two”!

This is the first step in remedying an imbalance of more than $300 billion in commerce between the two economic giants.

The second headwind investors should be wary of is the uncertainty generated by this year’s U.S. presidential election.

Naturally, uncertainty is always linked to elections – something financial markets abhor – due to several different outcomes.

However, the 2020 election is particularly fundamental. The main reason for this is because whoever wins will, to all intents and purposes, be the CEO of the world’s largest economy.

Should Trump win a second term, we can likely expect more traditional policies, such as tax cuts and regulatory changes.

That said, should a Democrat win, this will probably not be the case. Indeed, Democrat candidate, Elizabeth Warren is especially unpopular with a large majority of investors due to her criticism of big banks and businesses, and she has also shown support for a wealth tax.

Furthermore, following President Trump’s impeachment, he now faces the next stage of the process which heads to the Senate later this month. Although no impeached president has been removed from office in the past, no party of a president who has been impeached has ever won the following presidential election.

The third key headwind investors will face in 2020 is the ongoing issue of Brexit. Should Britain finally agree to a withdrawal process from the European Union on January 31, then the hard work truly gets underway.

Only then can the crucial trade negotiations and talks over the future relationship between the UK and EU begin in earnest. It is likely that these talks will be highly complex, gruelling and controversial.

Moreover, there is still the threat of a no-deal Brexit scenario. Should this occur, then corporate investment and household big-ticket spending will likely be delayed until next year at the very least. In addition, the pound would continue to be volatile.

Indeed, we can see that uncertainty will roll on this year, weighing on global investors. That said, on the flipside, there are three principal tailwinds I believe investors could benefit from in 2020.

First is possible fiscal stimuli. This is reportedly the case in the UK following the general election and the Conservatives’ overwhelming victory. Elsewhere, in Germany, Europe’s largest economy, is looks as though the country is loosening the purse strings. Across to Asia, Japan is planning a supplementary budget, whilst the U.S. and China are doing so already. All these actions provide a boost to domestic and global demand.

The second key tailwind is that it is forecast that ultra-low interest rates will be here for a while yet. This will support stock market and credit valuations. It’s unlikely that inflation will be an issue over the coming few years, which should help to maintain interest rates at the current low levels and hike demand for credit and consumption.

Third, the UK and other European stock markets will appear cheap this year. After a decade of falling behind the U.S., stock markets in Europe now offer value. Indeed, dividend yields surpass those on Wall Street, and we may witness a regional economic recovery in 2020, bolstered by consumer spending in France. Nevertheless, a disorderly Brexit outcome could well incumber this process.

The banking sector in Europe would indeed benefit from a boost to economic growth, helping to increase the demand for loans and reduce the burden of non-performing loans.

This sector has been the main reason for the region’s underperformance in the stock market against the U.S. over the past year, and the one that offers what may be the best opportunity should growth now rally.

With key headwinds and tailwinds inevitably on the way, it’s essential that investors stay invested. As we know, history has shown us that stock markets tend to go up over the long-term.

As such, it’s crucial that investors ensure their portfolios are suitably diversified across asset classes, sectors, currencies and regions, so as to make the most of the opportunities that present themselves and avoid the risks.

Here’s to a rewarding 2020!

Nigel Green is founder and CEO of deVere Group. One of the world’s largest independent financial advisory organizations, de Vere does business in 100 countries and has more than $12 billion under advisement.
 

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NigelGreen
It’s crucial that investors ensure their portfolios are suitably diversified across asset classes, sectors, currencies and regions, so as to make the most of the opportunities that present themselves and avoid the risks.
headwinds, tailwinds, investors, 2020
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Thursday, 02 January 2020 12:05 PM
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