3 Themes for Global Economies in 2020

VIDEO: JPMorgan's Karen Ward discusses the outlook for global earnings, central bank interest rates and a lack of diversity in the investment industry 

Holly Black 5 March, 2020 | 10:30AM
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Holly Black: Welcome to the Morningstar's "Ask the Expert." I'm Holly Black. With me is Karen Ward. She is Chief Market Strategist at JPMorgan. Hello.

Karen Ward: Hi. Thanks for having me.

Black: So, we've got three charts showing you all sorts of themes for 2020. Would you want to talk us through them?

Ward: Thanks, Holly. Well, these are from the Guide to the Markets. This is our quarterly publication. And the idea of this report is it helps people think about asset allocation by region and across all assets. So, the first one I've picked out, I think, was the key concern I had coming into the year, which was the expectations for corporate earnings were pretty high. And that was because of two factors, one that the central banks were going to keep working really hard to support the recovery. We heard from the Fed last year how determined they were. So, there was a lot of optimism about the policy tailwinds. But the second idea was also that we didn't have to worry about political risk anymore because the trade war between the US and China was over. And I was a little bit skeptical about that one, because we have a US presidential election this year, we have ongoing Brexit risk. So, the idea we were going to have this big bounce back in activity, I was a bit more concerned about. And also, corporate margins are under pressure, which is the right-hand slide in this panel…

Black: And then, now, under more pressure because we've got the coronavirus spreading and there are a lot of profit concerns.

Ward: Well, that's right, Holly. The V-shaped nature of the recovery is certainly changing with the coronavirus news. I think for investors going on to the next slide, you know, they do still know that they're going to be fighting the central banks, they're getting too bearish. We've seen some pretty significant change in pricing across their fixed income markets. The Fed are priced to cut more this year, actually also the Bank of England and other European central banks also. So, we are still going to see additional policy stimulus from the central banks and that has good and bad news for investors.

It's good news in that it pushes bond yields down to new, unforeseen lows. And therefore, bonds do what you want them to do in a portfolio, which is to go up in price when stocks are falling. And the bad news for investors, however, is it leaves income challenges. And that's the third slide I've picked out is just as we talk to investors about the income options on the table, whether that's considering equities for income these days, which increasingly European investors are having to go to the stock markets for income, or thinking about some of the alternative private markets also.

Black: But with that going to equity through income, obviously, the yields are attractive, but you are moving up the risk scale.

Ward: Exactly. And there's no such thing as a free lunch, Holly, unfortunately. So, a lot of the work we're doing – in fact, we had a piece just released two weeks ago was just trying to allow people to understand what those risks are, what's the scale of them, so that they can understand whether they have the appetite to stomach for these risks. If you've got a nice long-term horizon, and you're really willing to not look at your portfolio every day, then you can take on that risk and you can manage the volatility. If not, you have to accept those lower yields.

Black: Okay. So, these are sort of three economic themes for the year. But I think another theme for 2020 is diversity. And what we're seeing is still a lack of women in investment. Why do you think they're so underrepresented in this industry?

Ward: I think we've still got a lot of work to do to make it clear that the culture is appealing. I think we are battling against the idea still that working in finance in whatever form means 16-hour days followed by parties; in a very short-term it's cutthroat greedy environment. I think certain movies don't help generate that perception. So, I think we've just got to demonstrate that that's not the reality. You know, what we're here to do, certainly in asset management is to help people with long-term goals. That's to generate a good pension, that's to save for their kids' education. There's a real deep purpose in the work that we're doing. And that is appealing, I think, culturally. That's certainly our culture at JPMorgan Asset Management. And we also just need to demonstrate the balance – your life balance is achievable as well. I mean, I have a big job. I travel. But it's actually very rare that I'm not home for bath time and bedtime with my kids. So, we just need to challenge some of the movie scripts.

Black: Yes. Well, thank you so much for your time.

Ward: Thank you.

Black: And thanks for joining us.

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Holly Black  is Senior Editor, Morningstar.co.uk


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