Monthly Investment Strategy - July 2020
Stay updated on the global economy and markets every month with insights from our CIO Desk, Asia.
Topic this month: Reassess the Key Investment Risks in 2H 2020
The second quarter was the best quarter for US stocks, US investment grade and high yield bonds, as well as oil prices in two to three decades. After such a stellar rally we need to reassess the key areas to monitor closely for the second half, namely the second wave, US elections and deglobalisation.
THE SECOND WAVE
On the second wave, there are some signs that the second wave appeared in some states in the US. There was also some local outbreaks in part of China, Australia and part of Europe.
And for Latin America and also Indonesia and India, they're still in their first wave. But overall we do think the entire lockdown at country level, especially for developed countries, the chance is small.
THE US ELECTIONS
On the US elections, historically, when there was the recession within the two years of the election, the incumbents only won two out of seven times. And for now, Joe Biden is leading in the national polls and for his policy it's very likely that if he wins, there will be some moderate rollback in terms of Trump's massive tax cuts.
And for policies towards China it's a bipartisan agreement, so the tensions with China will continue, especially on topics like human rights, intellectual property and fair trade.
On deglobalisation theme, recently there was a China-India cross-border dispute and this has led to some boycott of Chinese products and also the Indian government announced a ban on some China apps. These events could mark a watershed of future multi-polar Asia.
At a global level, obviously for COVID, it can actually increase your political risk and also it accelerates a shifting of the supply chains. We expect Taiwan and Korea to be the key beneficiaries of this deglobalisation trend.
BARBELL INVESTMENT STRATEGY
Overall, we recommend investors to use a barbell strategy for the second half. On the one hand, they should stay invested with exposure to risk assets, to benefit from the global recovery, as well as the abundant liquidity provided by central banks.
But on the other hand, they should also invest in the defensive strategies, such as gold, quality corporate bonds and also dividend stocks to hedge against the key risks that we mentioned above.
Click on the link below to download the full July Investment Navigator - Asia report in PDF. In addition to the above content, you get:
Information about BNP Paribas Portfolio Optimizer, a proprietary methodology that we use to advise our clients.
And a note on our Discretionary Portfolio Management (DPM) services