The Wealth Management Department of Standard Chartered Bank today released the Global Market Outlook for the second half of 2020. The report pointed out that as most economies gradually ended their economic blockade, the world economy and financial markets showed different recovery trends. In the coming year, Standard Chartered is optimistic about global equities, credit bonds and multi asset income strategy. At the same time, Standard Chartered believes that the potential risks are mainly reflected in the new round of blockade that may be brought about by the surge of COVID-19 cases again, the trend of tension between China and the United States, and the market fluctuations brought about by the US election. Therefore, Standard Chartered proposes to use gold as a tool for downside protection, and use the rebound of volatility to generate income.
With the lifting of blockades in major economies, the loose monetary environment and growing fiscal policy support are expected to drive economic recovery. In the United States, the enterprise funds obtained through the wage security plan are about to run out, and the weekly additional unemployment benefits of $600 will also expire at the end of July. It is expected that the United States Congress will approve a new round of $3 trillion economic stimulus plan. In Europe, EU member states have reached an agreement on the EU Recovery Fund plan, and the European Commission will provide strong financial support for the European economic recovery.
However, the United States has imposed new tariffs on the United Kingdom, Europe and Canada. The COVID-19 epidemic and related geopolitical risks are also the main risks facing the market at present.
Although the world economic situation is not optimistic, Standard Chartered still predicts that China will become the first major economy to recover from the COVID-19 epidemic. China's production level will return to the pre epidemic level by the end of 2020, while the United States and the euro area are likely to return to the previous production level by the end of 2021 or early 2022. New infrastructure construction and employment creation through fiscal and monetary policies are the main factors driving China's economic recovery. Standard Chartered expects China's GDP to grow by 1.8% in 2020, 7.5% in 2021, and MLF to remain at 2.95%.
In terms of specific investment, investors are most concerned about whether to invest in stocks or credit bonds. Standard Chartered believes that the yield of stocks and credit bonds is likely to exceed that of cash and interest rate bonds. Compared with stocks, Standard Chartered is more optimistic about credit bonds, especially high-yield credit bonds in developed markets.
Since the recent interest margin between stocks and credit bonds has reached the lowest level since 2010, and from the prospective P/E ratio, the stock valuation seems to be on the high side, and the price of credit bonds has become more attractive. Although the research and development progress of COVID-19 vaccine may push up the stock valuation, Standard Chartered still believes that the probability of stock yield outperforming credit bonds is small due to its uncertainty. At the same time, the economy of the United States and Europe is gradually reopening, fiscal and monetary policies continue to be loose, the credit risk of high-yield corporate bonds is reduced, and the yield is likely to be ahead of other assets.
For the stock market, from the perspective of earnings growth and low interest rate debt yield, Standard Chartered believes that American stocks are more attractive than global stocks. Standard Chartered expects that the profits of American companies will shrink by 21% in 2020, but will rebound by 30% in 2021, returning to the level in 2019.
Standard Chartered believes that the index performance of Asia (excluding Japan) will be positively correlated with the global technology industry. Cyclical stock recovery and 5G demand rise are good for Asian (excluding Japan) stocks. In addition, it is expected that the US dollar will fall by 5% - 7% in the next 12 months, which may promote the inflow of foreign capital into the region, and will also benefit the performance of Asian (excluding Japan) indexes.
It is worth noting that Standard Chartered believes that the increasing capital flows from the Shanghai Hong Kong Stock Connect and Shenzhen Hong Kong Stock Connect to the north and south and the loose monetary policy will provide strong support for China's stock market. In addition, the return of China Concept Shares and their secondary listing in Hong Kong may become the main factor driving the development of China's offshore market in the second half of 2020.