The management of risk will be "paramount" for investing during 2020 as major political developments will cause big swings in sentiment, a global strategist has predicted.
Neil Dwane, global strategist at Allianz Global Investment, told FTAdviser he expected “wide risk on/risk off movements” — shifts in investor sentiment towards risk — throughout the year as the outlook moved alongside major political developments.
He thought this would be primarily down to the US presidential election, trade developments and “ample liquidity” from central banks.
The US came under scrutiny in 2019 due to rising trade tensions with China, but this stalemate appears to be ending and could encourage investors to move into “risk on” phases throughout 2020.
Any hiccups in the trade negotiations or potential resolution could equally turn investors off risky assets.
Similarly when Americans head to the polls on November 3 to determine whether to re-elect Mr Trump, the outcome will either spur or deter investors from increasing their risk appetite.
Central banks have helped stocks and shares throughout 2019 by cutting rates which were already low, allowing investors to pile money into the markets.
Mr Dwane thought this would continue in 2020 and that central banks would remain a “major market driver”.
He said: “In 2020 we expect markets to pivot between embracing and avoiding risk as they process muted economic growth, low rates and heightened political uncertainty.
“This will likely contribute to wide movements as sentiment swings between riskier and safer asset classes.”
Mr Dwane thought investors should consider managing risk actively rather than accepting volatile index returns. Ways in which to do this included incorporating environmental, social and governance factors into investment decisions and adopting “thematic approaches”.
He added: “Unless they want to chase index performance in this up-and-down environment, investors will need to address risk in a deeper, more holistic way. For example, by focusing on climate change and other risks that a company may face as it produces its goods and services.”
He also urged investors to keep their portfolios on track by having conviction and “not avoiding” risk.
imogen.tew@ft.com
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