Weekly View - New year new fears
2019 was one for the books, having delivered the best equity returns since 2013. 2020 wasn’t off to a bad start either; on Thursday, the first trading day of the year, global stocks reached record highs on the news that the Chinese central bank will inject USD 115billion into China’s financial system. Shanghai- and Shenzhen-listed Chinese stocks reached their highest levels in over a year. Even Hong Kong-listed shares tracked solid gains despite continued turmoil around the anti-government demonstrations. Within emerging-market (EM) equities, our outlook is positive on Asia, especially China, which is well positioned to gain from continued fiscal and monetary stimulus.
What a difference a day makes. From his Mar-a-Lago resort, Trump was swiftly back to business after the New Year, decidedly escalating US tensions with Iran by ordering the attack that killed the Iranian Revolutionary Guard general Qasem Soleimani. With retaliation from Iran expected, oil prices jumped more than 4% on Friday as investors brace for the degree of confrontation to follow and its impact on the world’s largest oil-producing region. Meanwhile, global equity markets retreated from Thursday’s record highs on the news with geopolitics set to take the leading role on the 2020 market stage at the same time as weaker Institute for Supply Management (ISM) prints were released in the US. Gold and government bonds rallied on the risk-off sentiment. We remain positive on energy stocks, which should benefit, as well as gold, for its safe-haven status.
Spain’s new leftist coalition government announced its ‘programme of a progressive coalition’ last week, an agreement that seeks to raise corporate taxes and lift the minimum wage, among other objectives. The coalition – which falls short of a majority – still needs to win parliament’s approval by way of a relative majority in a second vote on Tuesday. However, the coalition itself brings with it uncertainties that could well jeopardise Spain’s growth outlook. We are negative on Spanish yields and underweight European sovereign debt more broadly.