Please note: this article is more than one year old. The views of our CIO team may have changed since it was published, and the data on which it was based may have been revised.

There is a risk, in a time of prolonged economic uncertainty, that you become blinded to the pitfalls ahead. U.S./China trade tensions have now been ramping up for over a year, and other geopolitical tensions for even longer (Brexit for over three). But while we have suffered bouts of volatility, markets have not fallen into a more prolonged period of gloom.


To a great extent, this has been due to continued efforts of central banks, with the Fed, ECB and Bank of Japan recently loosening policy in anticipation of further economic weakness. As a result, economic growth and financial markets have been supported, even though these are not the primary goals of central banks. 


Even though times have changed since the beginning of the year, we still feel comfortable with the six themes that we highlighted in January.

Six themes update
Theme 1: Economy

Growth deceleration

Slower economic growth is already a reality in most of the world's major regions, with a few individual economies possibly in recession. This presents an uncertain background for financial markets. The key issue now is whether the U.S. economic growth engine will start to stutter in the face of trade and other pressures. But, as we argue, a recession in the U.S., or globally, is not an imminent threat.

Theme 2: Capital markets

Vigilant on volatility

Financial markets in 2019 have not yet had a bout of equity market volatility as severe as in late 2018. But one cannot be ruled out. In addition to the usual late-cycle problems, there are the contributing factors of trade and other geopolitics – as well as a growing realization that markets are still dependent on central bank support.

Theme 3: Fixed income

U.S. yields on the return

While core government yields have declined much more than expected, our advocacy at the start of the year for a selective approach remains valid. In a world increasingly dominated by negative-yielding debt, some fixed-income segments (for example some emerging markets debt or high yield) may still appeal.

Theme 4: Equities

Earnings ease

Actual corporate earnings – and expectations around future profitability – have been easing down, although we think that market estimates for Q4 2019 could still be unrealistically optimistic. Despite continued central bank policy support, we think that equities may provide only modest gains over a 12-month horizon.

Theme 5: FX & commodities

U.S. dollar and oil center-stage

Our expectation that the U.S. dollar would not backtrack significantly against the euro has proved broadly correct: the main point now is to what extent trade-related issues will create political headwinds for the greenback. Meanwhile, oil demand concerns seem likely to counterbalance worries about supply disruption.

Theme 6

Long-term investment: Tech transition

Reversals in some individual technology stocks should not blind us to tech’s role in the many exciting structural changes in the global economy. As we note, investor interest in ESG continues to grow and fiscal policy changes could have an impact on another focus area: infrastructure.


The report “Stay prepared – Investment themes and forecasts update" includes our current macroeconomic forecasts for 2019 and 2020, as well as our 12-month market forecasts. 


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