A Year of Choices

As 2020 approaches, many investors are feeling anxious, with geopolitical tensions a primary source of their unease. UBS’s recent Investor Watch survey revealed that four in five investors think we are entering a period of higher volatility, with two-thirds viewing markets as driven more by geopolitical events than fundamentals. Geoffrey Yu, Head of the UK Investment Office at UBS Wealth Management, writes

How should they navigate these markets? We have called 2020 “The Year of Choices”. From the US presidential election to trade negotiations and fiscal policy, political choices will increasingly shape outcomes for our clients.

Global economic growth for this year looks to have fallen to a post-financial crisis low due to slowdowns in the US, Europe, and China. Although the labour market and consumption remained relatively healthy, fixed investment and trade growth weakened as the US-China trade conflict impacted business confidence.

Heading into 2020, our base case is that this sub-trend growth to continue. But in a Year of Choices – for policymakers, electorates, and investors alike – the two-way uncertainty around our base case is greater than usual. Hence, we see 3 key ‘choices’ defining


Firstly, elections will take place in the US and, in December 2019, the UK.

The issues up for grabs are numerous and varied, ranging from growing income inequality and technological change to who pays for the growing environmental crisis. The polarization between candidates, magnitude of issues, and asset allocation importance of the US and UK markets mean investors around the world will be watching these elections keenly. How each issue is decided will shape global trends and define sectoral winners and losers.

Secondly, China’s competition with the US in the economic, technological, and geopolitical spheres creates an ongoing challenge to the previous world order that will not be easily resolved.

In an era of “deglobalisation,” the trade turmoil between the two nations could flare up again in 2020, even if an interim deal is reached soon. But, equally, both sides have key incentives to avoid esclation. A deal to reduce or remove existing tariffs and a pledge to stop adding more could dramatically reduce global economic uncertainty, unlock pent-up investment demand, and enable President Trump to “declare victory” in an election year.

Finally, with interest rates already close to, at, or below zero, the effectiveness of traditional monetary policy is now diminished, leaving us to consider the role of fiscal policy in stimulating growth.

Given a divided US Congress, Eurozone budget constraints, and China’s concerns about managing leverage, we think that meaningful fiscal stimulus in 2020 appears unlikely. But low inflation and interest rates do provide the leeway to take a fresh look at the role of government spending. Co-ordinated fiscal and monetary action could offer material upside to our growth expectations, even if it might require a “mini-crisis” to force policymakers to reassess their current approach.

These are the three main areas we’re following closely in 2020. But we’re also thinking much further ahead. Beyond 2020, we foresee a decade of transformation that will redefine our world. From game-changing technologies to the forward-thinking companies driving the transition to a more sustainable economy, opportunities will abound to invest in the ideas that shape the future.

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