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Banca March - Crecemos con valores, crecemos juntosNews

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At Banca March, we want to keep you always informed, and this section gives you the opportunity to find out whatever you want to know about.

12/18/2019

Central banks extend cycle and will buoy global economic growth to 3.1% in 2020

 
  • Banca March expects the global economy to extend its growth cycle to reach 3.1% in 2020, mainly thanks to the recovery of the emerging market economies.
  • According to the bank's Market Strategy Area, most monetary stimulus measures have already been rolled out and central bank support will be less aggressive than the markets are currently pricing in.
  • Given the current backdrop of low interest rates, Banca March's analysts continue to recommend investing differently in the coming years, increasing exposure to alternative investments and harnessing the illiquidity premium offered by the private markets.
  • Equities will generate positive returns, but far more moderate than in 2019; the emerging economies will contribute 80% to global growth in 2020, whilst EM companies are underrepresented in global indices, so the bank recommends increasing exposure to emerging markets, and Asia in particular.
  • The bank also likes hard currency-denominated emerging market fixed income, given that unlike in 2019, next year will see spreads narrow, which will make the asset class more compelling. • In light of Brexit, the bank recommends being overweight the UK through small and mid caps, which have greater exposure to the domestic economy and will therefore feel less of an impact from the appreciation of the pound.
  • As for Spain, Banca March forecasts GDP growth of 1.6% in 2020, versus 2.0% in 2019.

Banca March expects to see global economic growth of 3.1% in 2020, buoyed by the rally in emerging economies and stronger business confidence, particularly in the services sector; this will offset the weak performance of the industrial sector, which will gradually recover over the course of the year.

Whilst industrial indicators point to an incipient upturn, growth will remain modest, exceeding the 2.9% registered in 2019 but still a long way off the historical average of 3.5%. The maturity of the economic cycle, hefty debt levels and fiscal deficits all limit the potential for recovery, as Joan Bonet, Director of Market Strategy at Banca March, explained at a presentation of the bank's market outlook for the year ahead.

Central banks have leapt back into action with further asset purchases, bringing calm to the markets and generating widespread drops in rates, although Banca March does not expect the impact of these measures to be felt until 6 to 12 months' time. The bank's Market Strategy team has explained that the vast majority of monetary stimulus measures have already been taken and that “support from central banks will be less aggressive than the markets are pricing in”. Additional rate cuts are therefore not expected in either the US or Europe in 2020.

For the eurozone as a whole, Banca March forecasts growth of 1.2% next year. In Spain specifically, Banca March has observed a slowdown in growth that will see the economy expand by 1.6% in 2020, versus 2.0% this year.

New investment opportunities

Given the current backdrop of low interest rates, Banca March's analysts recommend investing differently in the coming years, increasing exposure to alternative investments and harnessing the illiquidity premium offered by the private markets.

  Banca March believes that the new decade set to commence in 2020 will be marked by constant change, and that investors will need to harness the opportunities offered by new trends such as the green economy, technology and infrastructure.

  In fixed income, the bank's experts highlight that yields will be low next year, but say there are still opportunities in European investment grade credit, which stands to benefit from the ECB's asset purchases, as they will lead to narrowing spreads. Banca March recommends investing in emerging market fixed income denominated in hard currency, rather than high yield debt; the former is likely to outperform given that, unlike in 2019, spreads are set to narrow, affording the asset class greater potential. The bank also prefers equities to bonds. In Europe, Banca March recommends being overweight the UK market, “which is clearly undervalued and stands to benefit from the stimulus plan that the Conservative party is going to put in place,” according to Bonet. Joan Bonet also emphasised the potential of the emerging economies, which are set to contribute 80% to global growth in 2020, whilst EM companies are underrepresented in global indices. The bank recommends raising exposure to emerging markets, and Asia in particular.

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