We retain our positive view on fixed income in 2020. Although central banks across the globe did not slash rates in the first rate decision of the year, this leaves ample headroom for future rate cuts later in the year. As always, the ongoing quantitative easing offers upside potential with downside protection. The latest fed meeting further confirmed that the QE programme will extend at least until April, which solidifies the short-term positive outlook for bonds.

We highlighted the volatility and downside risk for equity markets in 2020, which tensions in the Middle East, Brexit in Europe, impeachment in US, COVID-19 in China, and of course the unresolved trade war all contribute to the increasing risk profile of global equity markets. As the 2020 uncertainties remain, we continue to suggest allocating a portion of the investment in bonds to limit volatility and diversify risk in the portfolio, introducing bond exposure in the investment portfolio could provide a better risk adjusted return.

In line with our 2020 outlook on emerging markets, external shocks remained the key factor in EM performance. While trade barriers have decreased, the COVID-19 epidemic would likely dampen Chinese economic growth, reducing global demand, which might have a ripple effect on the global economy in 2020. EM economies which are often highly exposed to external markets might find rebounding the economy difficult in the short to mid-term.

As external risks mount, we would advise to take caution before investing in EM equities, although it is expected that EM economies should outgrow DM economies in 2020, the extent of damage caused by the epidemic would still require further investigation. Thus, we remain neutral on EM in the short to mid-term.

Chinese stocks rallied in the earlier portion of the month on the back of the successful Sino-US trade deal negotiation and the subsequent signage in Washington, but as the severity of the COVID-19 epidemic was unveiled, doubt is casted over the Chinese economic outlook.

Disregarding the epidemic, the overall economy continued to stabilise, various PMIs remained above the 50 level, industrial production also remained resilient, PPI also returned positive after six consecutive negative months. That said, industrial profits fell, exporting sectors continued to be exposed to internal and external risks. With the coronavirus outbreak yet to be contained, economic growth in China is likely to further slowdown.

Although the monetary policy enacted in early January should provide support to the markets, market sentiment stays vulnerable in the short to mid-term, and the long term economic prospect remains uncertain.

The biggest concern at the moment is the extent of damage caused by the COVID-19 outbreak, as the Japanese economy is relatively exposed to China, markets are concerned if the economy will take a hard blow as Chinese consumption falls, threatening economy revitalisation plans in Japan. With confirmed locally transmitted cases reported in Japan mainland, the outbreak also clouds Olympic prospects, as a more widespread impact could dissuade visitors, or even cause the event to be cancelled in extreme circumstances, potentially damaging the Japanese economy.

Yet, we stay positive on the economic outlook of Japan in 2020. Although the latest economic figures continue to show slight weakness, in particular soft PMI figures, which might be compounded with the ongoing virus outbreak. Yet, the key fiscal stimulation plan of Prime Minister Shinzo Abe should still provide much support to the Japanese economy, supporting the equity markets performance.

On the Brexit front, more EU officials including Commission President Ursula von der Leyen spoke as the UK proceed with Brexit, highlighting the overly short timeframe for negotiation, it is widely expected that there is unlikely to be any trade deal made within the 11-month transition period. The only silver lining amidst the chaos is the certain exit of the UK, as the European parliament backed the official UK withdrawal plan, which allows European corporations to plan accordingly.

European economic fundamentals stayed weak but showed signs of revitalisation. Eurozone manufacturing PMI continued to contract for twelve consecutive months, while the Euro Area Economic Sentiment Indicator recovered to 102.8 in January, reverting the downtrend. The European economy remains fragile with weaker growth drivers, the COVID-19 outbreak has yet to reflect its impact on the European economy, as there has been a higher dependence on China than market performance suggested. We see limited upside or even a possible market correction in the short-term as the impacts became better understood.

With the 1^st stage Sino-US trade deal finalised and signed in mid-January, market sentiment improved, US equities set new record highs in the month. US corporate earnings came in positive, with a majority reporting market beats. As the epidemic has limited impact to the US economy, there was no significant market correction. The January FOMC meeting resulted in no changes to the rate, but it is worth noting that the Fed promised that the current balance sheet expansion period will extend well into April, which provides additional support to markets.

Fundamentals stayed strong as expected, Q4 GDP met expectations, and the most important indicators of consumer confidence and various PMIs all exceeded market estimates, the US market remains a relatively attractive investment option with limited China exposure. Given the relative stable environment in the US, mainly due to a temporary ceasefire in the trade war, although global volatility increased over the month, we remain positive on the US equity markets in 2020.

United States 

Earlier this week, the number of new confirmed cases of COVID-19 in China continued to slowdown. The overall global stock market performed well, and US equities continued to hit new record highs. On Thursday, Chinese authorities announced that the number of newly diagnosed cases on Wednesday rose sharply, limiting US equity performance that night. However, over the past 5 days ending Thursday, the S&P 500, the Dow, and the NASDAQ rose 0.84%, 1.31%, and 1.46% respectively. Several US officials have shared their views on the economy. Fed Chairman Powell claimed that he is optimistic about the prospects of the US economy, he also reiterated his dovish stance; the Dallas Fed President similarly expected steady growth for the US economy this year. On the other hand, the New York Fed Reserve stated that it would further reduce the scale of overnight and regular repo operations starting on Friday. However, the Fed emphasized that the balance sheet expansion of US$60 billion per month will be kept unchanged. The minutes of the January FOMC meeting will be released next week, the market will focus on the Committee’s latest stance on the monetary policy of the year.

Europe

As it seemed that the COVID-19 epidemic was getting under control, European stock markets followed the global markets and rebounded, German stocks even closed at a record high. Over the past 5 days ending Thursday, the German DAX rose 1.26%, the French CAC was up 0.91%, while the FTSE 100 fell 0.7% as the Sterling strengthened. The UK Finance Minister Sajid Javid resigned in a surprising announcement, market expects that government spending may increase after the replacement, and the Pound rose accordingly. As for the European economic outlook, the European Commission expects that the European economy will stay on the weak side, and further lowered Italy’s economic growth forecast in 2020 from 0.4% to 0.3%. Eurozone and UK January inflation data will be released next week.

China

The China and Hong Kong stock markets continued their recovery over the week, The HSI rose 1.5%, while the CSI 300 Index was up by 2.25%. Earlier reports said that Zhong Nanshan, the high-level expert group leader of the Chinese National Health Commission, expected that the new coronavirus epidemic to peak this month and end around April. The market continued to digest the epidemic news, and partially recovered from the selloff in late January. China announced the inflation data for January earlier in the week, the CPI accelerated to 5.4% YoY, higher than market expectations and previous values of 4.9% and 4.5%. In particular, pork prices rose 116.0%. The high inflation has drawn market attention to its impact on future monetary policy. Next week, China will announce the RMB Loan Prime Rate (LPR). The market expects the one-year LPR to reduce 10 pips to 4.05%.

• Recent activities include : Harris Fraser held a Press Conference on “2020 Global Investment Market Outlook”, Attended Bloomberg Businessweek/Chinese Edition Top Fund Awards 2019
• Columns, media interview and online channels : “TVB News”,“TVB Big Big VIP”, “Now FINTERVIEW”, “iCable Finance”,“iCable News”, “Capital”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News” , “ET Net”,“OrangeNews”, “Quamnet” and online videos produced by Harris Fraser Group. (including but not limited to the above)

United States 

Although the spread of the new pneumonia epidemic has not subsided, US stocks hit a new high on Thursday. As of Thursday, the S & P 500 Index has rebounded 3.7% this week. U.S. stocks hit another record high, on the one hand because of the stable quarterly results of U.S. stocks, and on the other, because the market believes that global central banks will be able to increase monetary easing again. Based on the published 316 companies of S&P500 index, the ratio of profit beating market expectations has remained at a high level of 75%, reflecting that companies are not overly affected by the expected economic slowdown. In terms of industry classification, the ratio of technology sector to outperform expectations was the highest, close to 95%; followed by consumer goods sector, 89%, reflecting that the consumer market is still good. After the US Senate vote, the allegations about Trump's impeachment were not established. The United States will release the January consumer price index, as well as retail sales and Michigan market sentiment data next week.

Europe

As of the past 5 days on Thursday, global stock markets have generally risen, and European stock markets are no exception. The British, French, and German stock markets rose by 1.7%, 2.8%, and 3.2%, respectively. While the market still believes that central banks will launch stimulus measures again, European Central Bank President Lagarde said this week that the central bank has less room to deal with global threats, or there is limited options to further strengthening monetary easing measures. The final Markit Eurozone manufacturing PMI announced in January this week was 47.9, slightly better than the previous value and expectations, but the year-on-year growth in retail sales slowed to 1.3% in December and the data was 2.2% in November. Next week, the Eurozone will announce GDP in the fourth quarter of last year, and the market is expected to increase by 1% year-on-year, unchanged from previous values.

China

In the Chinese and Hong Kong markets, although the mainland stock market fell sharply on the first day of opening on Monday, it began to rebound after opening lower on Tuesday and then rose for four consecutive days to make up for losses these days. Hong Kong stocks also to above 27,000 points this week. The State Department announced on Thursday that it will reduce tariffs on approximately $ 75 billion of US imports originating next Friday. In addition, the executive meeting of the State Council also stated that another batch of fiscal, tax and financial policies to support the economy will be introduced, and this news has supported the market. China will announce the consumer price index for January next week, and the market is expected to grow to 4.9% year-on-year.

• Recent activities include : Harris Fraser held a Press Conference on “2020 Global Investment Market Outlook”, Attended Bloomberg Businessweek/Chinese Edition Top Fund Awards 2019
• Columns, media interview and online channels : “TVB News”,“TVB Big Big VIP”, “Now FINTERVIEW”, “iCable Finance” “iCable News”, “Capital”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News” , “ET Net”,“OrangeNews”, “Quamnet” and online videos produced by Harris Fraser Group. (including but not limited to the above)

United States 

The novel coronavirus pneumonia continued to rage across the globe. According to China officials and the World Health Organization (WHO) data, confirmed cases have exceeded 9,800 with more than 210 deaths. The WHO has decided to list the new pneumonia epidemic as a Public Health Emergency of International Concern. The global spread of the epidemic drove up anxiety in the investment market, we saw a slight correction in US equities earlier in the week, but the Indices managed to rebound on Thursday as corporate earnings surpassed market expectations. Major technology giants, including Amazon, Facebook, Apple, and Microsoft alike, announced their latest quarterly results this week, all of them beat market estimates, Paypal, MasterCard and Tesla also reported earnings beat. The US Federal Reserve announced no change in interest rates after the FOMC meeting, in line with market expectations. The FOMC policy statement claimed that the current inflation remains low and the economy is still growing at a "moderate rate". US economic data this week was satisfactory, as the 2019 Q4 GDP growth of 2.1% was slightly better than market expectations of 2%. Next week, US January data on ISM manufacturing and non-manufacturing PMI, non-farm payroll data alike will be released.

Europe

European stock markets declined over the week; the German DAX index fell 1.7% over the past 5 days ending Thursday. The Bank of England kept interest rates unchanged at 0.75% as expected, the Bank also maintained the same asset purchase scale. After the meeting, the Bank lowered its economic growth forecast, reducing the GDP growth forecast for 2020 from 1.2% in November 2019 to the current 0.8%. In addition, the central bank expects CPI to stay below the 2% target level until the end of 2021. Carney pointed out that British economic activity has increased significantly, and the economic growth rate in the first quarter of this year could reach 0.2%. If the economic recovery fell in line with expectations, a mild policy tightening might even be needed. On the other hand, the European Central Bank stated that it was ready to take any action on market fluctuations resulting from Brexit. Eurozone and German manufacturing PMI data will be released next week.

China

Confirmed cases of the novel coronavirus pneumonia in Mainland continued to increase, Asian stock markets suffered hefty setbacks. After the market opened on Wednesday, Hong Kong stocks plummeted more than 700 points for two consecutive days, totalling to a sharp drop of 5.4% over the period. After approval by the China Securities Regulatory Commission, the mainland stock market decided to extend the Lunar New Year holiday until 2nd February, and only open by 3rd February (next Monday). However, the Chinese economic data released was not excessively pessimistic. China’s manufacturing PMI dropped to 50 in January, a 0.2 drop from last month, in line with market expectations. The non-manufacturing PMI rose to 54.1 over the same period, increasing by 0.6 MoM, which was also better than the market expectation of 53.0. However, in the face of the severe epidemic situation, the offshore yuan (CNH) continued to weaken, falling below the 7 level against the US dollar for the first time this year. Service PMI figures will be released next week.

• Recent activities include : Harris Fraser held a Press Conference on “2020 Global Investment Market Outlook”, Attended Bloomberg Businessweek/Chinese Edition Top Fund Awards 2019
• Columns, media interview and online channels : “TVB News”,“TVB Big Big VIP”, “Now FINTERVIEW”, “iCable Finance”,“iCable News”, “Capital”, “SingTao Newspaper”, “Sing Tao Investment Weekly”, “Headlines News” , “ET Net”, “OrangeNews”, “Quamnet” and online videos produced by Harris Fraser Group. (including but not limited to the above)

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