“We think investors need not be anxious about global equity markets in 2020 even as markets have staged a strong advance throughout much of 2019 and economic data have softened.” – Stephen Dover
Here are some highlights of Dover’s commentary in our 2020 Global Investment Outlook.
- While many investors remain anxious, we see ample reason for people to remain invested in global equities in 2020. We believe the potential for interest rates to continue to stay low, or fall further, over the course of 2020 should create a constructive environment for equity markets. Lower interest rates would continue to force investors to seek out yield, and we believe equities are one of the more attractive options for that.
- The global economy remains fundamentally sound and we see few signs it is headed toward recession. Economic data in fall 2019 showed softening in the manufacturing sector partly tied to trade issues. However, the global economy has changed and is now much more based on services, even in emerging markets, than on manufacturing, and this makes the economy more stable. While manufacturing has clearly hit a rough stretch, the consumer (especially in the United States) has proven much more resilient.
- We favour looking for selective opportunities in companies that are innovating within their respective industries and in out-of-favour value stocks. Innovative companies are typically wealth creators that can increase productivity and can provide investors with strong performance potential over the longer term.
- Generally, we believe emerging markets are more appealing than developed markets, as the economic growth differential between the two widens in the favour of emerging markets. On a valuation basis, emerging markets also have been trading below their long-term average discount to developed markets, despite improving cash flows and dividend payout ratios, and corporate deleveraging.
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What Are the Risks?
All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Bond prices generally move in the opposite direction of interest rates. Thus, as the prices of bonds adjust to a rise in interest rates, the share price may decline. Investments in foreign securities involve special risks including currency fluctuations, economic instability and political developments. Investments in emerging market countries involve heightened risks related to the same factors, in addition to those associated with these markets’ smaller size, lesser liquidity and lack of established legal, political, business and social frameworks to support securities markets. Such investments could experience significant price volatility in any given year. High yields reflect the higher credit risk associated with these lower-rated securities and, in some cases, the lower market prices for these instruments. Interest rate movements may affect the share price and yield. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are guaranteed.