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Outlook 2020: What Themes Are You Looking Out For?

20 December 2019

We asked a number of our investment managers what themes they anticipate they are likely to focus on in 2020.

Reiko Mito

Investment Director, Japan Equities

First, we feel the internet of things and the integration of computing into production lines have become increasingly important. We believe it will contribute to the prevention of product defects and to the improvement of overall production yield. Second, we view digital marketing as a significant theme in Japan, similar to other markets. In addition to internet advertising, O2O (online to offline) promotion has become increasingly important. We believe advertising and promotion will be more personalised and therefore more valuable to advertisers. Finally, we have the IT services sector. Labour shortage in Japan is critical, and this tightness is especially strong in the corporate administration and back office sector. Companies that can provide system integration in the fields of accounting, personal compensation, tax and software will likely have a good time in 2020.

Paul McNamara

Investment Director, Emerging Markets Fixed Income

The idea that there is so little yield left in the world means, in our view, that a key appeal of local emerging markets will be yield. Currently we are looking at countries that justify paying a slightly higher premium, where you are not having to take excessive risk just to boost returns a little bit. We believe that this low forever rates environment is key.

Swetha Ramachandran

Investment Manager, Luxury Equities

We believe the luxury sector is predicated on a very long-term secular thematic, which is the rise of the emerging middle class and their consumption habits. The structural thematic of five people joining the global middle class every second remains intact, with four of these being from Asia. Beyond this, we feel the demographic shift of the millennial and Gen Z consumer within the luxury sector also becomes more important and will become a driver that we will take into account in our investment decisions. This brings about digital, which will likely become very important as a result of this demographic’s preferences. Finally, we suspect sustainability will become much more important than it is today, because the younger consumers have stated that they are very much interested in this as a theme.

Christophe Eggmann

Investment Director, Healthcare Equities

Our investment themes focus on innovation. We will continue to invest in the most innovative areas of healthcare, such as gene therapy, oncology, genomics and digital health, to name a few examples.

Gianmarco Mondani

Investment Director, European Non-Directional Equity

We think that, with the current environment of very little to no growth produced by the average company, our long book should focus on companies with visible opportunities for significant earnings growth. On the short side, we are looking for companies that, on top of having to face cyclical pressures due to the economy, also have structural problems. This might be a result of the digital disruption that is coming into, say, banking or the clothing industry. The automobile industry is also facing new trends and new products, as well as electrification, resulting in a problematic time for consumers when trying to choose which technology to back. This leads to the rise of winners, but also many losers, which we are trying to play on the short side.

John Seo

Co-Founder and Managing Director, Fermat Capital Management

Our general approach to the market is to understand the scientific risks that we can rate. We know what the risks are; what we have to react to is what comes to the market, in what amounts and what types. It is a purely reactionary and opportunistic approach, but we are looking for an increasing amount of governmental issuers, mainly brought to market by the World Bank. We believe this is a very exciting dynamic. We are also seeing a return of traditional reinsurance companies issuing bonds into the marketplace. Those are our expectations, but the details are not known, however, until we see the offering circular hit our desk.

Adrian Owens

Investment Director, Global Macro & Currency Fixed Income

The four key themes that we are looking at are the UK, Mexico, Scandinavia and inflation. In terms of the UK, fixed income has performed very strongly. We believe there is a good chance in the coming months that this will disappear and UK fixed income will be one of the big underperformers. Mexico has been very strong in terms of the rates market over the past year. Growth is slowing, inflation is coming down, and real interest rates are around 4.5%. Relative to the rest of the world, that is incredibly attractive. Scandinavia is a market we have liked for some time. The Swedish krona and the Norwegian krone are very cheap. Both the central banks are moving in the opposite direction to the rest of Europe and the data is also diverging. This is particularly apparent when looking at something like industrial production in Sweden versus Germany. In the UK, investors have been concerned about a pickup in inflation. We think they have been overly concerned and, as things calm down next year, we think there are some really good opportunities there to be short UK inflation. In contrast, in the US, we think the opposite trade applies; that is a market where we believe an investor might want to own inflation. As a final theme, albeit perhaps not a core one at this point, we suspect there is a real opportunity to see a slightly weaker dollar. If that is the case, that would go hand in hand with some selective opportunities in emerging markets.

Important legal information
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator for the current or future development. Reference to a specific security is not a recommendation to buy or sell that security.