Investment Outlook
2020
INVESTMENT OUTLOOK 2020 OVERVIEW
Hazem Ayoub, Head of Investments - Mashreq shares an overview
IN THE REAR VIEW MIRROR
2019
OVERALL, IT TURNED OUT TO BE ONE OF THE BEST YEARS FOR FINANCIAL MARKETS
WHAT BEGAN WITH INVESTORS COURTING A BEAR MARKET
  • Geopolitical worries
  • Prolonged trade tensions
  • Deceleration in investments & manufacturing
  • Brexit uncertainties
ENDED WITH SOME OF THE BIGGEST GAINS IN FINANCIAL ASSETS
  • Global stocks piled more than $10 trillion
  • Bonds saw green throughout the year
  • Oil surged almost 25%
  • Gold too sparkled with a 15% jump
The Top 3 Reasons
1
Change of direction by top central banks led by the Federal Reserve, and a worldwide blizzard of rate cuts
2
Strong consumer and resilient labour markets on both sides of the Atlantic
3
China stimulating its $14 trillion economy which accounts for almost a third of global growth each year
Performance of Major Asset Classes
Asset class
total returns (%)
Source: Bloomberg as of December 31, 2019
THROUGH THE LOOKING GLASS
2020
Major Market Themes
a full overview of the World Economy
2020 - THE WORLD IN A SNAPSHOT
Plus
Robust consumer, strong labour market, easy financial conditions
Minus
US elections, fear of renewed trade disputes with China or Europe
Plus
Brazil's long-awaited pension reforms signal improved investor confidence. Mexico's new free trade agreement should contribute towards growth
Minus
Argentina is yet to convince investors about market-friendly economic policies
Plus
With Brexit delivered, the focus will move to negotiations on the Brexit deal
Minus
Brexit noise still loud, with final terms of the deal unknown
Plus
Strong internal consumption, robust labour market, reassuring ECB stance
Minus
Vulnerability of export-oriented economies to slowing global trade, possible future trade confrontations with the US
Plus
Regional government-led structural reforms should encourage employment and consumption. Expo 2020 in Dubai is a keenly awaited event
Minus
Higher fiscal spending will put pressure on budget deficits
Plus
India rolls out fiscal and monetary stimulus to spur the economy
Minus
Consumption and investment demand remain weak
Plus
Phase-one trade deal with the US signed, embarking on an accommodative monetary policy
Minus
Growth rate slowing to below 6% pa, elevated debt levels constraining stimulus policies
our Regional Outlook
WHERE TO INVEST IN 2020
EQUITIES
A Leading Asset Class
With super low and even negative yields in major part of the developed markets, higher returns are to be found in equities, especially in companies with domestic exposure and companies that are able to generate and grow their dividends
US
Neutral to positive
  • Enjoys a strong labour market, a resilient consumer, and an accommodative Fed
  • In a late cycle and low yield world, dividend paying stocks and consumer stocks look attractive
  • Yet, elections in the second half of the year cloud the outlook
EU
Neutral to positive
  • Strong labour markets and robust internal consumption
  • Receding political risks from trade war and Brexit
  • ECB to stay accommodative, with potential for fiscal intervention
  • Stocks with domestic exposure stand to gain from improving consumption
China
Neutral
  • Low and attractive valuations
  • Central bank stands ready to loosen monetary policy
  • However, there is slowing growth with mounting debt concerns
GCC
Positive
  • Low and attractive valuations
  • Fiscal spending and economic diversification should drive growth
  • Expo 2020 in Dubai and Vision 2030 in KSA to attract capital inflows
our in-depth analysis on Equities
FIXED INCOME
A Middle Of The Road Approach
With returns in many asset classes likely to be muted in 2020, allocation to credit offering enhanced yields makes much sense. A middle of the road approach is prudent in light of the very low yield on safest credit and the rising credit risk on high yield issuers
Safe government bonds in developed markets provide very low to negative yields
Investment grade is expected to provide subdued returns due to stretched valuations
Speculative grade in vulnerable sectors such as steel and energy need caution
Focus on this part of the credit spectrum, with paper rated up to BB. EM hard currency bonds look attractive, especially Asian credit. We also see some value in DM subordinated preferred issues
1
Emerging markets’ hard currency sovereign and corporate debt is expected to outperform, given low yields elsewhere and with more headroom for central banks to ease their monetary policies
2
Better opportunities in Asian credit with a combination of attractive yields, growth and some de-leveraging. Worries over the impact of the US-China trade war have triggered a rise in spreads even though corporate fundamentals remain sound
3
Subordinated/hybrid financial debt in developed markets remains attractive, due to higher yields along with close call back dates, and fundamentally strong issuers
our in-depth analysis on Fixed Income
COMMODITIES
Time To Be Selective
As the global economy slows, gold will play a valuable role in diversifying portfolios, defensively
Oil
Trade range bound between $60-$70/bbl through the year, unless there is a major political escalation or renewed volatility on the US-China front
Upward price pressure could build up following extended OPEC production cuts or reversals in US shale oil production
Little chances of a solid recovery in demand in 2020 and tepid pickup in global manufacturing will keep demand constrained
Gold
Will remain a safe-haven asset and an effective hedge against rising uncertainties
Strong demand from central banks around the world, and from specific Asian countries
Prices expected to stay elevated as moderate growth, low interest rates and geopolitical jitters spur risk aversion to other asset classes
our in-depth analysis on Commodities
CURRENCIES
Volatility Presents Opportunities
In a climate where yields are scarce, investors will be looking to profit from volatility surrounding the US elections, and from rising geopolitical risks.
Alternatively, individuals who have accumulated significant wealth will be looking to protect their portfolios with suitable cover
USD
Neutral with a negative tilt
With the Fed likely to remain accommodative and with fading headline risks, the USD may face more downside risk than upside
EUR
Neutral with a positive tilt
As the ECB monetary policy peters out, the EUR is likely to bottom out in an improved economic outlook for the second half of the year
GBP
Neutral
With the Brexit transition not looking like a smooth ride, outlook on the GBP will stay neutral
JYP
Neutral with a positive tilt
Its safe haven role and seemingly limited monetary support will likely see JPY regaining strength
CHF
Positive
Despite low inflation and an accommodative central bank policy, the CHF’s haven attributes should lay support to the currency
our in-depth analysis on Currencies
UAE MILLENNIALS
Key Insights
2.5 million
INDIVIDUALS
AGED BETWEEN
19 and 39 years
Big Spenders
Typically spend
2 times more
than their European counterparts
Spend more on non-essential, high-value items such as travel, luxury shopping and gold
Spend as much as
30-50%
of their average $40,000 annual earnings
Spend more through
e-commerce
Unconventional Savers
41%
are seriously interested
in buying a house
35%
are saving for retirement
Almost 40%
are saving for international travel
35%
are simply saving for ‘rainy days’
Highly Entrepreneurial
Driven by job and political insecurities, they are far more business-minded than global peers
46%
start a business while still in school or
university - the highest proportion
in the world
63%
of business owners are aged less than
35 years
INVESTING AND THE UAE MILLENNIAL
Patterns
Greatly prefer short-term investments over long-term
25%
do not believe in the stock market
75%
favour cash, real estate, gold and bitcoin over equities
77%
do not have a
financial advisor
only 39%
wish to have one
Only 38% are in their
workforce retirement plans,
with 41% having no
retirement savings at all
Preferences
Closely associate personal values and social activism with investments
Over 80% feel it is important that the companies they invest in are ESG compliant and adhere to strong principles of welfare
Almost 75% are more likely to contribute, or increase contributions, to a workplace retirement plan if they know their investments will do social good
Priorities
Robust wealth management can help tackle high spending and low saving
As their age matures towards 40, it is pertinent for their spending and saving habits to mature equally
Reality checks on debt repayments, future emergencies, family needs and bigger future costs are important
A combination of the right investment products, customised banking services, and digital tracking of their lives is imperative
our special report on UAE Millennials
Investment Outlook 2020