Investment Outlook (Q1/2020)

The Investment Outlook for the first quarter of 2020 has been published.

“Supreme excellence consists of breaking the enemy’s resistance without fighting.”

Sun Tzu, The Art of War

Macro Environment

No significant inflation pressure in developed markets
European growth loses further momentum
US consumer confidence remains intact while capital markets focus on international trade woes
Emerging markets set to rebound after last year’s slowdown
Corona virus in China has to be watched carefully

Outlook and Markets

Valuations remain stretched in a lot of markets
Easing of trade frictions between the US and China as a tailwind for markets. Trump’s Tweets continue to be a major market mover
Fed remains under (mostly political) pressure to cut rates substantially

Stay cautious and maintain a neutral stance between the income and the return part of the portfolio
Overweight in Cash
Overweight in Sovereign Bonds as a recession risk buffer
Overweight in Emerging vs Developed Equities
EMD and Investment Grade Credit over Sovereign Bonds

Full scale trade war between the US and China, escalating further also on a political level despite the recent agreement on “phase-one”
Higher than expected inflation in the US due to higher import tariffs, coupled with substantially increased spending leads to the Fed needing to restart hiking rates, thus choking off economic momentum, leading to an earlier and deeper recession
Unexpected fallout from a chaotic Brexit could lead to another Euro crisis and put global growth at risk
Risks of policy missteps as China continues the attempt to rebalance its economy to a more domestically supported one and impose too strict regulatory frameworks on banks
Further escalation of the Iran-US conflict, sending oil prices substantially higher, leading to higher inflation rates and more pronounced recessionary tendencies
Spreading of the Corona virus leading to a short term disruption of supply chains and panic selling of risk assets

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