KUALA LUMPUR, Nov 27 (Bernama) -- Amid global economic stagnation and rising political uncertainty in a low-yield world, investors should look beyond the comfort of conventional asset classes with a cautious, diversified approach for better risk-adjusted returns, says Aberdeen Standard Investments.

Govinda Finn, Japan and Developed Asia Economist at Aberdeen Standard Investments, highlights key themes that are set to influence the global economy and investment landscape in 2020:

Global Economic Stagnation But Not Recession
"Secular stagnation with low growth, weak inflation and low interest rates is likely to define global economy for the next five years. Going into 2020, rising policy and political uncertainty will continue to weigh on industrial, trade and investment activities. We have downgraded our global GDP growth forecasts for 2020 and 2021 to 3.1%, well below the post-crisis average. A recession could be avoided next year but the risks have clearly increased.”

Dovish Central Bank Policies Cushion Slowdown 
“Significant monetary easing by central banks should support growth at low but positive levels. We expect the U.S. Federal Reserve’s last rate cut in this mini-cycle to come in the first half of 2020, and the European Central Bank to take further steps. We also expect further action by central banks in Australia, Canada, Brazil, China, India and Russia in the coming months, and more fiscal stimulus next year as politicians look again at their tax and spending programmes. Such measures should help cushion any market shocks.”

Political, Trade Risks Dampen Sentiment 
“With the fractious Brexit process, rising protectionism and trade disputes across the globe, investors will need to be cognisant of heightened geopolitical risk and its fallout. Lingering political uncertainty will create persistent direct and sentiment-driven drags on global trade, business investment and services. US-China trade tensions remain a key risk and we do not foresee a quick resolution. Korea and Taiwan are vulnerable to trade conflict centred on the technology sector; while the dispute between Japan and Korea will further disrupt the global tech supply chain.”

Traditional Assets Returns Under Threat
"We expect investment returns from traditional assets to be much lower than in the past. A significant amount of government bonds are already yielding negative. The late stage of the business cycle and the lack of room for corporate margin expansion suggest that equity returns will be below their long-term average. The classic rotation from equities to government bonds and investment grade credit will no longer be appropriate in this cycle.”

Structural Themes Create Long-Term Opportunities
"In the next decade, structural themes such as climate change and technological disruptions are set to shape markets. An increasingly important driver of long-term asset class returns will be environmental, social and governance (ESG) factors, including demographic shifts, governance trends and environmental risks. As innovative technologies such as 5G and artificial intelligence create new opportunities, the technology sector outlook may see significant improvement from the current low base over the long run.”

How should investors position themselves in this environment?

Govinda Finn comments:

Diversifying Across Less Correlated Assets
“The current environment warrants a cautious and diversified approach beyond conventional equity-bond allocation. While emerging market (EM) and Japanese equities still look attractive, other alternative risk-adjusted expected returns will come from less familiar asset classes. For example, the long-term prospects for local currency EM sovereign debt is unusually strong, with projected yields of nearly 6%. We are also overweight US Treasury Inflation Protected Securities (TIPS) and the Yen as diversifiers when volatility picks up.”

Enhancing Returns From Alternative Assets
"For investors who are able to bear illiquidity risk, private market assets which are uncorrelated with equity volatility, such as private equity, private debt, infrastructure and real estate, offer diversification benefits to portfolios and significantly higher returns potential than public markets. We particularly favour infrastructure, the combination of relatively high yields and economically insensitive cash flows makes it a very attractive diversifier.”

Investing in ESG and Technology
"The longer-term opportunities lie in ESG, low-carbon energy transition and technological disruptions. Tackling climate change requires massive transformation in energy use across the power, industrial, transportation, real estate and farm sectors. Meeting the Paris Agreement’s goals requires doubling annual global investment in renewables to over $700 billion. This is why ESG considerations must be at the heart of all investment strategies. Moreover, the innovation of artificial intelligence will not only transform business practices but also the investment opportunity set, creating winners and losers across the economy.”

Notes to editors

Important Information
The details contained here are for information purposes only and should not be considered as an offer, investment recommendation, or solicitation to deal in any investments or funds and does not constitute investment research, investment recommendation or investment advice in any jurisdiction.

All information, opinions and estimates in this document are those of Aberdeen Standard Investments, and constitute our best judgement as of the date indicated and may be superseded by subsequent market events or other reasons. Aberdeen Standard Investments reserves the right to make changes and corrections to its opinions expressed in this document at any time, without notice.

This communication is available for distribution by the following entity:
Malaysia by Aberdeen Standard Investments Malaysia Sdn Bhd.

Speakers
• Govinda Finn, Japan and Developed Asia Economist, Aberdeen Standard Investments
• Gerald Ambrose, Chief Executive Officer – Malaysia, Aberdeen Standard Investments
• Kenneth Akintewe, Head of Asian Sovereign Debt – Asian Fixed Income, Aberdeen Standard Investments
• Stefen Shin, Senior Investment Officer, Asian Infrastructure Investment Bank
• John Lee, Head of Direct Real Estate – Asia Pacific, Aberdeen Standard Investments
• Tony Peng, Investment Director, Multi-Asset Investing – Asia Pacific, Aberdeen Standard Investments
• Daniel Choong, Managing Director, Distribution – Malaysia, Aberdeen Standard Investments