Credit Suisse: No Shiny Returns for 2020
Credit Suisse does not expect the same strong returns in risk assets for the year ahead, but it remains fairly positive given healthy demand indicators and accommodative central bank policies.
After a disastrous fourth quarter last year, almost all asset classes made positive gains this year. However, much of the gains in 2019 are alluded to more accommodative central bank policies rather than by great earnings growth, which will be a key factor playing out for 2020, noted Ray Farris, Chief Investment Officer of South Asia at Credit Suisse.
«Returns are going to be fairly low (in the coming year). We don't expect the central bank to be that active next year as they've been this year. We believe that the global economy and markets will continue to show considerable resilience in the face of challenges,» said Farris, who spoke at a media briefing on Monday.
Demand Growth Outstripping Production
While global industrial production seemed to have stalled in the last six months, Farris points to global goods demand (excluding China) that has been on an uptrend since January 2018.
«Risky assets tend to do better when the industrial cycle improves. Demand has continued to grow...at some point, factories will resume a faster pace of production,» explains Farris, whose team forecasts a bounce in industrial production in the first half next year. In addition, the U.S. and Europe region saw continued wage growth since September 2016, which will be supportive of the consumption story.
Stronger Growth In Southeast Asia
Moving their attention to Asia-Pacific, Credit Suisse believes that the outlook for the more advanced countries of North Asia remains subdued due to weakness in Chinese trade, with a growth of just over 2 percent.
«Economic growth remains far stronger in much of Southeast Asia, which has more catch-up potential and is less integrated into China-based supply chains. Some countries, most prominently Vietnam, stand to benefit as production continues to shift in their direction,» said Farris.
For Singapore, a slight rebound to around 1.7 percent seems likely in 2020 if trade tensions abate. A de-escalation of the U.S. - China trade war would significantly benefit the countries closely tied into China-based supply chains. Even more important is the evolution of domestic demand in China and its impact on imports from the region, he added.
Equities Attractive
Equities, especially those in Asia, continue to offer an attractive return advantage over low-yielding bonds. On a sector level, Information Technology is preferred as one of the few high-growth sectors. Financials are also attractive, as the expected improvement in the cyclical outlook will likely trigger a further rotation into that sector in the first half of 2020.
«We believe a confluence of receding trade tensions, monetary policy easing from central banks across the world and indications of an imminent trough in Asia’s economic downturn projects a more constructive backdrop for Asian equities,» said Farris.
Economic Momentum In Asia
In view of improved economic momentum in Asia, Credit Suisse finds Asian investment grade (IG) to be a resilient segment for investors looking for cash alternatives. It forecasts Asia IG to deliver a total return of 3.0 percent in the next 12 months. For yield-seeking investors, they may find short-duration Asia high-yield with 7 percent very interesting as the region’s credit outlook improves.
«We expect Asian high-yield corporates to be supported by more accommodative policies. For example, authorities in China have taken steps to prevent the real estate sector from overheating but we believe that their actions are not aimed at depressing or constraining the sector given the weakness in manufacturing. Leading developers have also reported reasonable year-to-date sales growth and are likely to continue to do so,» said Suresh Tantia, Senior Investment Strategist, Asia Pacific, Credit Suisse who also spoke at the event.
