Hampered economic growth across international markets is the biggest challenge for institutional investors when devising 2020 investment strategies, according to Meketa Investment Group.
Such slowing growth across Europe, Asia, and domestic markets would be perpetuated by the looming adoptions of negative rates and/or quantitative easing, Meketa asserted. “With little room for reduction in rates outside the US, there is speculation of other policy measures being implemented,” the agency wrote in the Los Angeles County Employees’ Retirement Association’s recently published annual financial report.
Domestic markets are threatened by the natural cyclical variations of a mature economic cycle. “US equity markets remain extended despite the volatility spike in the fourth quarter of 2018, and the current economic cycle has been one of the longest on record now going into the 10th year,” the firm said in the annual report.
“The US and European Central Bank are expected to start cutting rates and could move back to quantitative easing,” Meketa said. While these policies typically provide a boon to markets and help to rally and sustain global growth, “the key questions remain whether or not global central banks are pivoting toward monetary easing too early and if the rally in risk assets is short-lived or more sustainable.”
The typical subsidiaries of a late-cycle economy are already in place, such as low unemployment, rising inflation, and stretched equity valuations. Next could potentially be a recession, according to former chair of the Federal Reserve Janet Yellen, who found “good reason” earlier this year to expect a forthcoming recession.
“I would bet that there would not be a recession in the coming year. But I would have to say that the odds of a recession are higher than normal and at a level that frankly I am not comfortable with,” she said.
Another threat outside of domestic circumstances is China’s slowing economic growth, as the Communist Part of China government transitions the world’s second-largest economy to one based increasingly on domestic consumption.
“This rebalancing process has led to a slowing of the economy which has hurt countries that have become reliant on its trade,” Meketa said. “The recent focus of tariffs between the US and China is another key issue that could have a disproportionally negative impact on China, as the US is one of their largest export destinations.”
Furthermore, European countries continue to have an integral issue maintaining a single ubiquitous currency and central bank, while Brexit concerns continue to weigh heavily on the region’s financial sector.
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