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New Quarterly House View: 2020 – no fireworks, but less could also be enough

Despite the presence of several potential showstoppers in the global economy, we still see a reasonable return potential for equities in the coming year. That’s one of the conclusions in the new Quarterly House View, where our strategists focus on developments in the global economy, current investment opportunities and the risks and expected return from equities in 2020.

A few months can really make a difference in the financial markets – in recent months for the better.

Market sentiment was bleak in August 
The US-China trade war was escalating and signs of weakness in the global economy were becoming more pronounced, while yields hit new lows in Europe and equity prices fell.

Optimism has now gained a significantly firmer footing
Political risk has eased following US-China negotiations on a partial deal in the trade dispute, while a number of positive economic key figures and more accommodative monetary policies from the central banks have  resulted in a slightly brighter outlook. This has sent both yields and equity prices higher.

Overweight maintained in equities 
Recent trends generally support Danske Bank’s expectation that equities still have a reasonable return potential in the coming year. Therefore we are maintaining a slight overweight in equities in our portfolios and a matching underweight in bonds – and we see the most attractive return potential in US equities.

Upswing still on track 

Equities are benefiting from the still ongoing upswing, which in the US has lasted more than 10 years, making it the longest upswing since World War 2. “However, we are in the late phase of the upswing, and the years of highest growth are now behind us. Nevertheless, in our view the upswing still has some time to run before the economy turns south – at least 12 months and potentially longer, which provides a foundation for further equity price rises in 2020,” says Danske Bank’s chief strategist Henrik Drusebjerg.

Our chief strategist evaluates and looks ahead


Key factors in 2020

An important factor here, according to the chief strategist, is that central banks continue to support the economy with accommodative monetary policies in the coming year, and he expects they will.

In addition to monetary policy, Henrik Drusebjerg has identified three other attention-grabbers for 2020 that could define the course of the financial markets.
  • The financial markets will be very vulnerable to signs that the upswing is nearing its expiry date.

    Economic data will therefore attract a great deal of attention, while renewed recession fears could trigger periods of pronounced market volatility and price falls.

  • What next for the trade war between the US and China, and will trade tensions between the US and Europe flare up?

    The US-China trade war has proved to be the most important geopolitical factor for the financial markets in years.

  • Finally, next year’s US presidential election will be a huge theme.

    Who will be the Democratic candidate and what will be their political and economic standpoint, and will Donald Trump be re-elected if he emerges unscathed from a potential impeachment? Who the next president of the US is could also have implications for the direction of the trade war between the US and China.

Do not expect a repeat of 2019
“Despite now being in a better place than a few months ago, the outlook is not completely rosy when looking ahead to 2020. While we expect a reasonable return from equities, investors should probably count on significant volatility along the way and should absolutely not expect returns to be on the same scale as we have seen this year – but less can also be enough,” says Henrik Drusebjerg.

This content is not investment advice - you should always speak to an advisor about how a possible investment matches your investment profile before making an investment.

Read the entire Quarterly House View

The report is distributed to Private Banking customers via eBanking / mobilebank and a selection of other large investment customers. 
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