Notable Cyclical and Longer Structural Trends of the Year
As the year is drawing to a close, we take a look at some of the top cyclical and longer structural investment trends that dominated 2019 and what this means for investors going into 2020.
- Improved Valuation in Asset Classes Geared for Growth
With the United States dragging its heels, valuations in property and equity assets in emerging markets became more attractive. This is mainly because of market corrections in 2018. It is expected that this will continue into the new year.
- Moderating International Growth
A much-debated topic has been whether there will be a recession in the United States in 2020 or merely a further slowdown in growth. Headlines in 2019 advised that growth forecasts for the year have been revised down.
- Geopolitical Influences
One of the most influential events on investment this year has been the United States-China trade war and the direction it may take, whether it will intensify or begin to moderate. Integration of trade across regions began to feature more prominently. In South Africa, two major geopolitical issues influenced investment potential, elections that happened in May and major issues with its power utility Eskom which has a massive debt of $30 million and power supply problems. Both issues placed the country at risk and could affect economic growth and its credit rating.
Longer Structural Trends
- Lower Returns
Due to a substantial overhang of debt, there was a lower return from asset classes over the medium to longer-term but extreme volatility masked this to an extent. As a result of this, investors focused on building portfolio diversity and resilience.
- Hunting for Yields
The anticipation of lower returns resulted in a hunt for returns. This led to a nominal growth in alternative asset classes where it’s still possible to find higher yields, in spite of it being more restrictive and complex.
- Pressure for Lower Fees
There has been a trend of pressure to lower fees whereby the volume of assets can either pay for asset management costs or smaller teams can justify higher fees for a more modest asset base.
- Outcome-based Investment
Another long-term trend experienced through the year is a focus on meeting the individual goals and needs of clients, and not just focusing on delivering returns against benchmarks. This type of outcome-based investment has been simplifying investment processes by helping investors remain focused on what’s important.
Geopolitical frictions have and may continue to be key drivers of the economy and markets, especially in the United States and South Africa. Other events that have led to geopolitical volatility, like the attacks on Saudi oil infrastructure, are expected to further impact the markets. While 2019 was marked with uncertainty about the United States, the robust consumer market has indicated that a downturn is less likely than previously anticipated. In the face of low yield levels, it is expected that investors will continue the trend of focusing on building portfolio resilience and diversity.