• Looking into 2020, our Global Equity strategists believe that the positive drivers will continue, at
least for the first half. Some negatives could start dominating later on, making 2020 a proverbial year
of two halves. They look for the extension of equity advance entering 2020, as positioning is still
light, with equity inflows likely to make a comeback. A US recession still looks unlikely over the next
quarters, and the manufacturing activity downturn witnessed over the past 18 months is likely to end,
partly helped by the trade truce. PMIs are expected to rebound and the positive impact from recent Fed
cuts is likely to filter into the economy in 1H. Furthermore, 2020 is a US election year, and markets
typically advanced strongly in the run-up to the presidential elections. Equity multiples remain
undemanding vs history and vs other asset classes and some potential from further rerating is seen.
Earnings growth in 2020 is unlikely to be as strong as consensus projects, but this is not seen as a
major obstacle, as long as earnings momentum is bottoming out. Further out though, some negatives could
begin to materialize, which the market might start to discount sometime in 2H. US politics could become a
lose-lose proposition, and trade uncertainty, as well as hard Brexit risk could come back. The Fed’s
credibility might start to be questioned, earnings are overshooting the trend, and rising credit concerns
could come to the fore. Further, while one should not expect the next US recession ahead of the
presidential elections, the odds of one might go up significantly post the event, in the team’s view.
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