Why 2020 is set to be a year of changes but not instability

Lombard Odier's 'Rethink Perspectives' event in London presented our investment convictions for 2020 and highlighted the US elections set to dominate the news cycle in the latter part of the year.

Managing Partner Fréderic Rochat, Chief Economist Samy Chaar, UK Private Bank Chief Executive Duncan MacIntyre and former White House Director of Global Engagement Brett Bruen debated the outlook.

Frédéric Rochat said that the transition to a clean, lean, inclusive and circular (CLIC) economy would create unprecedented opportunities to generate investment returns.

Commitment to the UK

The UK's departure from the European Union (EU) will mark a new chapter for the country and the EU, but it will have no impact on the ongoing growth of Lombard Odier's UK business, said Rochat.

Duncan MacIntyre said the decision in 2019 to bring together our businesses in Zurich, Geneva and London under a single market leadership and governance structure has made our offering even stronger.

“It allows us to serve clients with a more joined up approach, in the jurisdiction of their choice, with a single coverage team,” he added.

Post-trade shock hangover

We do not expect a US or European recession, nor a collapse in Chinese growth this year, said Samy Chaar.

Instead, we see four reasons why the world of slow growth and low rates is here to stay. Firstly, tariffs are still in place, curbing global trade flows, despite the signing of a ‘phase one’ US-China trade deal. Secondly, China’s economic shift from exports to domestic demand means that its growth rate is ultimately destined to slow to the ~2% seen across the developed world. Meanwhile, ageing demographics and a shrinking labour force in many large economies (including most developed markets, Russia, China and Brazil) will also act as a drag on growth, compounded by a lack of pro-growth reforms in Germany.

For now we maintain a balanced level of risk in portfolios, favouring carry strategies, including credit and emerging market assets over government bonds, and portfolio diversifiers, including real estate, safe haven assets and hedging positions.

We are in a “mountain roads” scenario, where it pays to drive carefully, maintain a moderate speed and not take too many risks, the audience was told.

An insider’s view of the White House

Brett Bruen, a former US diplomat who served on the US National Security Council during the Obama administration, said President Donald Trump’s key strength is his “forgivability.” A consummate communicator and tactician, people believe he is authentic, and expect him to make mistakes.

However, he needs to engage much more with female, suburban voters in the months ahead – and a large voter turnout could pose him significant problems in his bid to win a second term. 

“His challenge is also that voters don’t care about the economy that much,” said Bruen. “It’s hard to see how Trump has a path to victory.”

The Presidential race might thus be Joe Biden’s to lose. Still, the Democrats face many challenges. Their candidates lack a clear single message to voters. They have also mounted a largely ineffectual impeachment effort. That said, if the process succeeds in labelling President Trump as an abuser of power, it may ultimately contribute to a Democrat victory.

Another key factor could be what happens to Bernie Sanders and Elizabeth Warrens’ votes, if Biden is the chosen candidate. In the 2016 election, the “Bernie or bust” attitude of some of his followers meant many switched their votes from the Democrats when Hillary Clinton was chosen.

Mike Bloomberg will also be a significant factor in the race. The former New York mayor has kept a low profile to date, and has avoided being bruised by the debate so far and the challenges of campaigning in small towns.

Bruen highlighted the risks of foreign interference in the upcoming elections, cautioning that new tactics will likely be used across social media, and by actors in countries with which President Trump has soured relations.

Indeed, even if he is not re-elected, President Trump could continue to be a destabilising influence in US politics, in the ‘Post-American’ era.

“The US no longer enjoys its hegemony. We will see new poles of power. The US will continue to play a consequential role, but countries, companies, activists, individuals will take up challenges, causes and will influence the decisions that are made in the houses of power and on the streets of capitals,” Bruen added.