The global economy will bottom out in the second quarter of this year, then begin a U-shaped recovery. Supportive policies should lead to slightly higher inflation. Meanwhile, Europe may seize this opportunity to move towards greater fiscal integration and potentially embark upon an ambitious Green Deal. Across the Atlantic, regardless of which party takes the White House, electing a unified government will prove key to sustaining the recovery of the world’s largest economy.
That is the view of Bill Street and Daniele Antonucci, Group Chief Investment Officer and Chief Economist, respectively, at Quintet Private Bank, parent of London-headquartered Brown Shipley, which today released its midyear Counterpoint, featuring in-depth analysis of the world economy, financial markets and key asset classes.
Counterpoint focuses on five key questions for investors in the second half of 2020, presenting both the consensus view and challenging that conventional wisdom:
- How and when will the global economy recover from the crisis?
- Can policymakers take any further actions to jumpstart the economy?
- Will inflation make a comeback?
- Is this Europe’s defining moment?
- What will the US presidential election deliver?
Reviewing the outlook for equities, Street sees US markets – and technology and healthcare companies, in particular – as structural bright spots. More broadly, he expects ongoing private-sector consolidation in the post-pandemic environment.
“The largest companies, which already dominate their sectors, are likely to be the winners,” said Street. “They will be able to invest in their business models to grow market share even further, acquire smaller competitors at distressed prices and expand their operations into new areas where they see emerging opportunities.”
Fixed-income markets, by comparison, have received short-term support from central bank policies and government stimulus measures but face longer-term challenges, according to Quintet’s Group Chief Investment Officer, who is positive on inflation-linked bonds, high-yield debt and emerging market sovereign debt denominated in hard currencies. Given the highly uncertain environment, said Street, alternative investments can play an especially important role in increasing portfolio diversification. He sees particular opportunities in private equity – where fund managers are already circling quality assets at bargain-basement
prices – and hedge funds, which can also benefit from such dislocations.
Reflecting expectations that real global GDP will contract by more than 3% this year, gold prices and global gold holdings are expected to remain high. Demand has surged, too, for safe-haven currencies like the US dollar and Swiss franc. Moving forward, however, Quintet Chief Economist Daniele Antonucci believes that the US dollar will continue to depreciate gradually against other major currencies.
Turning to oil, he expects supply and demand to reach equilibrium by the end of the year, reflecting more normalized levels of economic activity and the impact of deep production cuts. “The oil industry’s longer-term decline appears inevitable, however,” said Antonucci. “As the world moves toward a low-carbon future, companies producing energy from renewable sources, as well as those involved in battery storage, offer more attractive investment opportunities.”
Pointing to the record inflows into sustainable funds since the start of 2020, Antonucci says the rise of sustainable investing will continue to accelerate. “Incorporating environmental, social and governance factors allows investors to take a broader view of potential risks and opportunities, so they can build more resilient portfolios and foster beneficial change,” he said.
“Before the pandemic, investors were increasingly concerned with not just doing well but also doing good,” said Antonucci. “Today, it’s clear that sustainable investing is here to stay.”