A roundup of what The Globe and Mail’s market strategist Scott Barlow is reading today on the Web
JP Morgan’s top trade ideas for 2020 are all based on global reflation, according to Bloomberg’s Dani Burger.
The company’s strategists believe that global manufacturing activity levels have bottomed out and recommend investors buy emerging markets stocks (which, by the way, are highly correlated to the S&P/TSX Composite), German equities and Japanese banks.
On the negative side, JP Morgan advises avoiding corporate debt and bonds in general and short gold.
These trade ideas imply stronger resource prices which is also good for domestic equities.
“JPMorgan’s Top 2020 Trades” – Bloomberg (video)
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Citi is recommending investors stay away from Canadian corporate debt no matter how desperate the need for yield,
“Under all the interest rate scenarios, even the current benign path, Canada, Sweden, and France have [non-financial corporate debt service ratios] well above the pre-crisis peak and show a substantial deviation from the 20-year average … Australia’s exposure on the scenario for both corporate and household remain below the pre-crisis peak. In the case of Belgium and Norway, [non-financial corporate debt service ratio] appears robust to interest rate scenarios even if [household debt service ratios] . This leaves Sweden, Canada, and France as economies where spillovers and spillbacks between [non-financial corporate] and households warrants greater attention”
“@SBarlow_ROB Citi highlights Canada's corporate debt service ratio. It's real high, "Selected Advanced Economies –Nonfinancial Corporate Debt Service Ratio (Deviation from Long-Term Average), 2001-2020"” – Twitter (chart)
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Robin Wigglesworth from the Financial Times cites research predicting that investors should not get their hopes up for strong equity market performance in the next decade,
“'I think this will be an abnormally low-return decade,' warned Andrew Sheets, chief cross-asset strategist at Morgan Stanley. ‘For bonds it’s just arithmetic, but for equities there are also valuation challenges.’ …
"Morgan Stanley estimates that a classic investor portfolio — made up of 60 per cent US equities and 40 per cent bonds — will return just 4.1 per cent per year over the next decade, a performance so muted it has rarely been worse in the past seven decades … Luca Paolini, chief strategist at Pictet Asset Management … He pointed out there have been several secular trends that have helped buoy financial markets in recent decades, which are now turning … demographics are worsening, with the baby boomers retiring in increasing numbers and sapping economies of their vim. Open trade and globalisation are also in retreat, corporate taxes are likely to rise, and minimum wage increases are rising on the political agenda. This may be good for many people, but is likely to hurt market returns.”
“ Investors grit their teeth for a ‘low return decade’” – Financial Times (paywall)
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Diversion: “How ‘Fleabag’ Became the Defining Comedy of 2019” – The Ringer
Newsletter: “Ten things fund managers say and what they actually mean” – Globe Investor
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