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Why 2020 could be 'relief' for investors

Why 2020 could be 'relief' for investors

The year ahead could be a "relief" to investors following the turbulence and political uncertainty of 2019, according to the global head of multi-asset solutions at JP Morgan Asset Management.

John Bilton said last year's positive equity market performance was largely influenced by the fact market valuations fell sharply at the end of 2018 and bounced back in 2019 after fears about the consequences of US interest rate rises proved unfounded.

Mr Bilton said: "The net result of our economic outlook is that we will see a rebound in activity sufficient to provide trend-like growth and maintain high levels of employment, but not strong enough to stoke inflation and force central banks to rethink their accommodative policy.

"Overall, we see a year of growth and moderation ahead. Growth in terms of the economy and earnings, but moderation in terms of monetary policy, multiple expansion and asset market returns.

"After the more febrile and nail-biting environment of 2019 this may be a welcome relief to many and could serve to slowly improve investors’ confidence."

But he said the full impact of the decision of the US Federal Reserve to cut interest rates in September, rather than raise them further, is not yet reflected in share prices and this will push stock markets higher in 2020.

Mr Bilton said: "While we acknowledge that stocks have delivered strong returns in 2019, we do not agree that all of the recovery in activity and easing of political risk is in the price already.

"Equity returns in 2019 were entirely driven by valuations, but given where they started – immediately following a fourth-quarter sell-off in 2018 – valuations on global equities are now roughly in line with their long-term average.

"A modest, mid-single digit rise in earnings in 2020, combined with typical dividends, would suggest upper-single digit global equity returns even without any heroic assumptions on margins or valuations."

He added: "In many regards 2019 was a year of dislocation and disruption.

"Over the next 12 months, we expect to see the recent recovery in economic momentum gain traction, with global economic growth returning to trend by mid-2020.

"We also believe that the trade tensions, which contributed to the more febrile geopolitical environment of 2019, will stabilise as the political calculus in Washington tilts towards preparing for November’s presidential election."

He said he expected the improvement in economic growth to be "moderate" in nature, but, combined with lower interest rates, this would mean equity markets will perform well.

david.thorpe@ft.com

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