Global Markets Outlook

Global Markets Outlook

We think the rally in risky assets will continue

While risky assets have already rebounded a long way since their lows in March, we think that they will generally make further ground over the coming months, albeit at a slower pace. That view is underpinned by our forecast that the global economy will continue to recover, even if more slowly and unevenly than during its initial bounce-back over the past few months, and that ample policy support will remain in place for as long as it is needed. Even though our forecasts are built on relatively conservative assumptions about the evolution of the coronavirus pandemic, the possibility that the recent resurgence of new cases forces renewed restrictions on economic activity remains the key risk to our generally optimistic views.

Global Markets Outlook

We think the recovery in risky assets has further to go

We forecast further gains in most risky assets between now and the end of next year. This reflects our expectation of a rebound in economic activity starting in the second half of 2020, alongside the continuation of massive monetary and fiscal policy support. Admittedly, risky assets have already recovered quite a lot of the ground that they lost after the outbreak of coronavirus. And two key downside risks remain. First, success in containing the virus could be reversed as economies reopen. Second, the consensus for policy support might break down. But assuming these risks do not materialise, we anticipate that the rally will continue.

Global Markets Outlook

Weak recovery likely to leave markets treading water

After a stellar 2019 for most risky assets, we think that they will generally make only small gains in 2020. Admittedly, our forecasts assume that the effects of the coronavirus outbreak on markets will eventually unwind, since we simply don’t know how it will evolve. But regardless of that, we think that the global recovery will be uneven and weaker than investors hope. With another big dovish surprise from central banks like the one that boosted valuations in 2019 also unlikely, we don’t expect equities to gain much. Finally, we think that bond yields will rise in the US and UK but edge down elsewhere, and that the US dollar will strengthen further.

Global Markets Outlook

Road ahead still looks bumpy for equities

We have revised up our end-2019 forecasts for equities, which previously pointed to a large correction. But even without this big pothole, we continue to think that the road ahead for them will be bumpy. Admittedly, we had underestimated the extent to which looser monetary policy would shore up stock markets. But the further easing that we anticipate in some cases is already discounted. Meanwhile, with the global economy likely to remain in the doldrums, and the US-China trade war not going away, we suspect that corporate earnings will struggle to live up to investors’ expectations of a rebound.

Global Markets Outlook

Road ahead still looks bumpy for equities