Ten Outrageous Predictions for 2020

Ten Outrageous Predictions for 2020

6. South Africa gets electrocuted by Eskom debt

The South African government announcement late this year that in order to continue to bail out troubled utility Eskom and keep the nation’s lights on, the budget next year is projected to balloon to its worst level in over a decade at 6.5 percent of GDP, a sharp deterioration after the government managed to stabilise finances at a near constant -4 percent of GDP for the last few years. Late 2019 saw some of the most generous credit conditions for emerging markets in history and the market somehow managed to absorb this news without jettisoning the rand to new lows for the year.  

But in 2020, the jig will be up for the country. The Eskom fiasco is the straw that will break the back of creditors’ willingness to continue funding a country that hasn’t had its financial or governance house in order for decades. Other uncreditworthy EMs will be drawn into the abyss as well in 2020, with the most differentiated performance across EM economies in years. USDZAR rises from 15 to 20 as the country teeters toward default.

7. Trump announces America First Tax

In an effort to steal back the protectionist narrative, President Trump reconstructs the U.S. corporate tax schedule to favour US-based production under the claimed principles of «fair and free trade». The plan cancels all existing tariffs and instead slaps a flat value-added tax of 25 percent on all gross revenues in the US market that are sourced from foreign production. A 25 percent tax on all foreign-derived revenue scrambles supply lines and pushes inflation higher.

Faced with these stern terms, US corporations scramble to re-shore production wherever they can to avoid the punitive tax. With the US jobs market already tight, wage inflation and inflation generally push higher. Market anticipation of years of poor budget discipline and a rising CPI as the official US CPI measure moves toward 5% as the year draws to a close sees a swarm of investor interest in inflation-protected US treasuries. 

8. Sweden breaks bad 

Sweden is now in recession and with its small open economy status is extremely sensitive to the global slowdown. This sense of crisis, social and economic, will create a mandate for change.With its very low rates and unnecessarily large budget surpluses, Sweden is better equipped than most to rehabilitate its model with a massive increase in spending on education, reschooling, apprenticeship, social housing and efforts at true integration.

This fiscal spend will drive EUR/SEK down, strengthening the Swedish Krone. In 2020, Sweden again becomes a leader and a role model, not because it’s politically correct, but because in the end it will «do the right thing» by rehabilitating a model that has broken bad. 

9. Democrats win clean sweep in 2020 election

This coming election, the vote on the left is thoroughly rocked by dislike of Trump – with suburban women and millennials showing up to express their revulsion for Trump. The Democrats win the popular vote by over 20 million, grow their control of the House, and even narrowly take the Senate.

Healthcare is the single sector that is in for a strong headwind from a Democratic clean sweep in the election, as Medicare for all and negotiations for drug pricing bring a massive haircut to the industry’s profitability.  Big healthcare and pharma stocks collapse 50 percent.

10. Hungary leaves the EU

Prime Minister Orbán is openly talking about how Hungary is a ‘blood brother’ with the renegade Turkey as opposed to a part of the rest of Europe, a big shift in rhetoric that has not gone unnoticed in Hungary — as well as among bureaucrats and politicians in Brussels. That this change of tone coincides with EU transfers all but disappearing over the next two years is hardly surprising.

However, this will leave Hungary’s currency, the forint (HUF) on the back foot and take it to a new, much weaker level of 375 in EUR/HUF terms as the markets fear the disengagement or reversal of capital flows as EU companies reconsider their investment in Hungary. HUF collapses to EUR/HUF 375 as Hungary’s leadership and the EU fight over the country’s place in the Union.  

Detailed predictions can be found in Saxo Bank's publication here.