Page 12 - ISQ UK JANUARY 2020

INVESTMENT STRATEGY QUARTERLY

Watching the eurozone bond markets will provide many TO IMPROVE IS TO CHANGE…
insights into the magnitude of regional change. Whilst it is Elsewhere in Asia, it is all a question of managing change. The
unlikely that either the level of eurozone interest rates or the Chinese economy will continue to grow impressively from an
quantum of quantitative easing will change during 2020, look international perspective, as the prowess of the local consumer
out for the conclusions from the ECB’s review of its inflation continues to build. However, policymakers are increasingly
targeting. It is possible that this may become unsymmetric, having to manage new pressures across areas such as the local
that is more concern will be attributed to an inflation level government, the banking system, and the property market.
below the current two percent target, rather than one above. If These are undoubtedly the unsurprising outputs from change
this does become a new policy conclusion then expect and reform, which continue at a magnitude which puts other
influential regional bond yields such as the ten year German countries and regions to shame. However, greater global focus
bund to move back into positive yield territory. on political-led pressures in Hong Kong and Xinjiang are also
likely to continue rumbling on.
Similar policy conclusions could be made about Japan, albeit
their policy malaise has been ongoing for over a quarter of a Diplomatically, this is a crucial time for China. Its Belt and Road
century now. Expect a small boost from the country hosting initiative was launched with great fanfare, but has not yet had
the Olympic games this summer. However, it will take more the impact that Beijing had hoped. Watch out for the potential
than the world’s most famous sporting gathering to shift the that China further deepens its ties with Europe in 2020, a
Japanese economy out of dullness dominated by debt and synergy which would provide both sides with a boost.
demographics. Yet, below the surface, Japanese companies
are becoming more shareholder friendly (similar to some Elsewhere, markets in South America and Africa will hope for
recent trends in their European peers), with both return on a firm Chinese economy given their important trade
equity and buyback statistics up sharply. Again, an relationships. Reform initiatives in countries such as Brazil as
unappreciated market with some value characteristics may well as a number of East African nations bode well. Although,
provide some attractions for suitably specific global investors. the backdrop is far from flawless (as the recent fall in value of

Caught in the Vortex

The trade war between the US and China has caused collateral
damage abroad, with many developed economies caught in the crossfire.
However, recent positive progress remains encouraging.

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