As 2020 approaches, many investors are feeling anxious, with geopolitical tensions a primary source of their unease. That's one of the key conclusions of the UBS Investor Watch, which surveyed global investors on their outlook for 2020 and beyond. So how should investors position amid this uncertainty? We have released the Year Ahead 2020, which offers guidance on navigating the market and highlights key investment trends and opportunities.
In our base case, we expect sub-trend growth to continue into 2020. But in a "Year of Choices" – for policymakers, electorates, and investors alike – the two-way uncertainty around our base case is greater than usual. Market performance will depend in large part on political decisions, but investors can reassert some control over their portfolios by seeking investments less sensitive to political outcomes:
* Within equities, we recommend quality and dividends, and choosing domestic and consumer-focused companies that are likely to provide more reliable returns than those exposed to trade and business spending.
* In fixed income, we suggest a middle-of-the-road approach given low yields on the safest debt and the rising credit risks among some high yield issuers. We favor emerging market sovereign debt, select “crossover” names in Europe, and sustainable over traditional bonds.
* Elsewhere, we like precious metals over cyclical commodities, expect US dollar underperformance, and advocate a low beta posture within alternatives.
Looking further ahead we expect a "Decade of Transformation." Working-age populations in developed countries will begin to shrink, and a less favorable political backdrop could emerge for higher-income individuals. We also expect significant environmentally and technologically led innovations to disrupt existing norms in a deglobalizing world.
Overall, we think all this will mean lower returns and higher volatility for most financial assets than in the past decade. Investors targeting a given level of return in well-diversified portfolios may therefore need to increase their allocation to riskier assets such as equities.
Yet, with a clear financial plan in place, investors will also enjoy ample chances to benefit. Particularly exciting trends we highlight include digital transformation, genetic therapies, water, and sustainable investing.
Read more in our full report, The Year of Choices, The Decade of Transformation.