The market outlooks of the major banks this year are relatively different than in previous years
For example, BlackRock believes that the economy will continue to be weak next year, and Schroeder raised its forecast for the global economy next year. Keith Wade, chief economist at Schroder, explained that the improvement comes from the estimation that China and the United States will reach the first phase of the trade agreement before the end of the year. Large factors may prevent the economy from recession. He also expected that the second-phase agreement between China and the United States would not be promoted until after the general election, and it is expected that the ceasefire next year.
Elections coming, Trump concentrates on elections
Keith said he believes that there will be a first-phase trade agreement between China and the United States before the end of this year, which will promote global trade and capital investment and improve economic activity in Europe, the United States and Japan. He explained that at present the United States needs the impetus to stimulate the economy, and the agreement is one of them, so even if China asks to withdraw some tariffs, the United States may accept it. However, he believes that the second-phase agreement will not appear until the 2020 presidential election, at which time it may be possible to resolve differences in scientific and technological intellectual property rights; and it is estimated that there will be an armistice next year, and President Trump will declare that he has won a good deal. In fact, he will also need to focus on the presidential election next year, more than trade negotiations with China.
However, Keith expects that the tariffs will be maintained during the process. For example, the United States believes that China is cracking down on the local job market, and China expects the United States to withdraw more tariffs. Differences still exist, so this will only reach a certain degree of agreement. He believes that for the time being both China and the United States have separated the Hong Kong issue from the trade war and have yet to confuse the meeting. It is difficult to say which side has the advantage, but US President Trump faces an election battle and needs an agreement to win votes. He pointed out that Trump used fiscal policies too early to stimulate the economy. Generally, candidates will be launched before the election, which makes people feel that the economic situation is good. Instead, there is no room for launch this year, and China has no election consideration.
U.S. interest rate cuts only next year
He raised his forecast for global economic growth to 2.6% next year. In addition to believing that there will be a trade agreement, he also has central bank policy support. There is no downside risk to the economy, or it can avoid a recession and continue to expand. In fact, the favorable factors brought by the interest rate reduction have also been reflected in household and corporate borrowing. The US housing applications and housing construction have rebounded sharply. He expected global inflation to be at a stable level of 2.6% next year, but with the impact of the economic slowdown gradually emerging, inflation may also decline in the second half of next year. Earlier, the Federal Reserve Board has shown that it can tolerate inflation above the target level, coupled with the current low and stable oil prices, it seems that it will not push up inflation and it is not expected to trigger market anxiety. The United States may only cut interest rates by 0.25% next year. Decide whether to reduce it again in 2021.
Similar to 2015, there is evidence of a pick-up in debt defaults in the Mainland this year. Keith also said frankly that this year, along with trade war factors, did indeed heat up the economic risks in the Mainland. The Central Government may launch more countermeasures, but the scale is expected to be small due to the current high debt level. Economists are more worried that even if the mainland’s economic growth is strong, they still belong to middle-income countries. Even if the central government wants to increase income levels, debt currently accounts for more than 300% of gross domestic product (GDP), which has become a major obstacle. He also expected that China’s economy will continue to slow down structurally, and the challenge in the future is to simultaneously deleverage and maintain economic growth. In the past, it was difficult for other countries to take into account simultaneously. For example, it is still difficult for Japan to reduce its debt level, and the US household debt level has been greatly reduced, but at the same time its growth has weakened.
Next year’s US presidential election, he believes that if Democratic candidates Elizabeth Warren or Bernie Sanders are elected, the policy will be significantly leftward, such as advocating tax increases and raising the minimum wage, or it will make the United States As a result, the global economy is weak, which is one of the risks. However, considering the current US economy and employment are still ideal, coupled with the current chances of re-election of President Trump. Another risk is the outbreak of a global trade war. Many European countries are worried that the United States will impose tariffs on its exports. There is also a rebound in the level of US consumer debt and the government ’s introduction of more fiscal policies to stimulate the economy as the global low interest rate environment.
Central bank adopts moderate attitude, gold supports
As for investor deployment, Patrick Brenner, head of Schroder Multi-asset Investment Asia, said that A shares still have attractive investment opportunities, supported by the index company MSCI’s increasing A share weight and the theme of attracting structural growth. However, if starting from a valuation perspective, and with increasing interest and sentiment from overseas investors, he is optimistic that H shares will outperform A shares next year. In comparison, he is still optimistic about the continued strong US technology stocks next year. It is expected that it will continue to be driven by liquidity. It is estimated that the Nasdaq will outperform the benchmark next year.
In terms of bonds, he is still optimistic about 10-year US Treasury bonds due to the weak global manufacturing cycle and the global central bank’s release of water, which also supports its hedging potential when the market is under pressure. He is also optimistic that the beneficiary central bank will ease liquidity of high-yield corporate bonds. With the increase of leverage, it will not help corporate profits and costs. Overall, he suggested that investors should increase the defensive strength of the portfolio next year, such as joining gold to diversify the portfolio. It is also expected that the mild attitude of the central bank will also support gold.