Market review: looking at what 2020 may bring for investors

Andrew Milligan

Aberdeen Standard Investments’ Head of Global Strategy, Andrew Milligan, gives his views on the challenges, trends and opportunities that 2020 may bring.

What do you think the main challenges will be for investors in 2020?

We see the main challenges as a mix of economics, populism and politics.

Starting with economics, the first concern is around the high levels of debt in various parts of the world. In China this is particularly affecting households and local governments, while in the US the main concerns are focused on corporate borrowing. For emerging markets, it’s largely concentrated on government borrowing (often called sovereign debt), which has been problematic for such countries as Argentina or Brazil.

Other economic concerns investors should be aware of this year are housing market pressures in some developed countries, the risk of rising inflation because of low unemployment, and pressure on the profits of small and medium-sized companies.

On balance we believe these problems are manageable, even though we’re currently in a period of slow economic growth. The reason for this is that interest rates remain low, and credit is still readily available to governments, businesses and individuals.

Populism won’t disappear quickly

Voter anger has built up over several decades in many countries around the slow growth of incomes, government austerity and deteriorating job security. In 2020, it could be the source of more political shocks, with complex Brexit negotiations, early elections in Italy, tensions in Hong Kong and the Middle East, and the US Presidential election just some potential examples. After the recent events with Iran, movements in oil prices could become rather important too.

The result of the US Presidential election is probably the most significant of these as it could mean major changes in policies around trade, technology and energy regulation, and healthcare costs, as well as the future relationship with China.

Any trade agreement between the US and China is likely to be simply a truce in a long-running competition for world power status. Unfortunately, this ongoing rivalry will probably continue to dampen business confidence globally and encourage firms to move production from China to other countries.

What do you see as the main investment themes and trends this year?

The key question is whether the slow economic growth that we saw in 2019 is signalling the start of a recession in any of the world’s major regions. We still don’t think this will happen, even if there are some warning signs. There’s been a lot of cost-cutting in manufacturing sectors. But that doesn’t look enough to cancel out the continued growth in employment in some service sectors.

Positive signs for business investment and trade growth

These have been helped by the interest rate cuts we saw in 2019. An interesting sector to keep an eye on is telecommunications, because of developments in smartphones, semi-conductors and 5G networks. Trends in car sales around the world are also a useful indicator of consumer confidence and spending.

We think the outlook could be even better if governments announce plans for increased spending and tax cuts over the next few years. In 2019, governments focused on lowering interest rates and quantitative easing, but central banks, such as the European Central Bank, are already warning that these policies will have a limited positive effect.

The good news is that there are already signs of public spending increases and tax cuts in China, parts of Europe, Japan and the UK. We may only see a modest impact initially as it takes time for larger-scale projects, such as those involving countries’ infrastructures, to reap benefits. But longer term, together with a truce in trade tensions between the US and China, these should support consumer and business spending.

What do you think are the best investment opportunities?

On the whole, bonds and equities did rather well in 2019, and we expect some of these markets to continue to offer attractive returns in 2020 and into 2021. Without doubt, there will be periods of market volatility over the coming year, but we’ve already seen increased investment in equities in recent weeks. And bonds are benefiting too as they provide income in a world of record low interest rates.

At Aberdeen Standard Investments, we’re focussing on US, Japanese and emerging market equities rather than European and UK equities. We’re also keen on real estate investment trusts (REITs), which are companies that own and manage property on behalf of their shareholders. They’re a way to invest in property without having to physically buy somewhere and, like equities, they have the potential to provide returns in the form of both capital growth and income.

Very few government bond markets look attractive to us, with the exception of a few such as Australia where there are interest rate cut opportunities. We prefer US and European corporate bonds, as well as bonds from emerging market countries, which also could be helped by any further interest rate cuts.

Is this the year that the US dollar falls?

There weren’t significant changes in the value of major currencies during 2019, and we don’t expect many in 2020 either. But we do expect the value of the US dollar to fall modestly against some other currencies. This is partly because of central banks having more money to spend and partly because investors now seem more encouraged to look beyond investing in the US.

Opportunities for active investors

Just as in 2019, a mix of economic, corporate and political factors is likely to provide short-term buying and selling opportunities for those who want to make more active decisions about their investments.

But it’s also a good idea to have a longer term and more strategic view about your investments. So you may want to look for ‘quality’ assets, which have more potential to perform reasonably, for example if there’s an economic downturn, if companies cut dividend payments, or if companies or governments issuing bonds default on payments.


The information in this article should not be regarded as financial advice. Please remember that the value of investments can go down as well as up and may be worth less than was paid in.

The information in this blog is based on Aberdeen Standard Investments’ views and understanding in January 2020.