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TRANSCRIPT
Inspire. Connect. Energise.
ANDREW PEASEGlobal Head of Investment StrategyRussell Investments
Wednesday, 13 November 2019
The art of the no-deal
Agenda
1.
2.
3. How to navigate?…Have a process
We should worry about the low return outlook
Plenty to worry about…but recession risks being pushed out
2
The art of the no-deal
Recession watch
5
Source: Image, i-stockphoto.com, stock photo.
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019
%Spread between U.S. 10 year & 2 year bonds
No.5 Recession watch
Source: Datastream, columns are NBER dated recessions, last observation 24 October 2019.
4
ScenariosTrade is the swing factor
Bull (35%)
Substantial trade deal.
Uncertainty clears. Global
economy rebounds as
monetary stimulus kicks-in.
Fed tightening by 2021
Central (40%)
Mini-deal that puts
trade tensions on hold but
does not reverse tariffs.
Modest global
economic recovery
Bear (25%)
Trade war escalates.
The global economy dips
into a mild recession.
Double-digit decline
in EPS
Source: Russell Investments, for illustrative purposes only.
5
The art of the no-deal
China/U.S. tensions
4
Source: Image, Shutterstock.com, stock photo.
The Thucydides trap is real
A grand bargain is unlikely
Source: Russell Investments, for illustrative purposes only.
7
US vs
China
Relations are
on a long-term
downtrend
2020
respite
The 2020 U.S.
elections will provide
a temporary respite
Trump or
Warren?
China may prefer
President Trump to
President Warren
The art of the no-deal
MMT
3
Source: Image, i-stockphoto.com, stock photo.
No.3 New economics jargon
Source: Image, thenounproject.com.
Modern Monetary Theory*Borrowing is free, so
governments should spend
*Magic Money Tree Theory
9
The art of the no-deal
Purgatory or Hell?
2
Source: Image, i-stockphoto.com, stock photo.
£
0
2
4
6
8
10
12
14
16
18
20
1960 1963 1966 1970 1973 1976 1979 1983 1986 1989 1992 1996 1999 2002 2005 2009 2012 2015 2018
%Nominal UK GDP Growth & the 10-Year Yield
Nominal GDP 5-year annualised growth 10-Year Yield
The risk free rate determines everything
Source: Datastream, columns are NBER dated recessions, last observation 24 October 2019.
11
The art of the no-deal
No-deal Brexit
is unlikely
1
Source: Image, i-stockphoto.com, stock photo.
Which is good for Sterling
Source: Russell Investments, for illustrative purposes only.
13
Sterling
Sterling is
still cheap
Equities
UK equities
are cheap
Gilts
Probably
seen the lows
in Gilts
Key takeaways
1.
2.
3. Cycle, Value and Sentiment are very good guides
Simple action: Have a disciplined investment process
Recession risks pushing out to 2021 or 2022
Low interest rates mean low returns
14
Important information
This material does not constitute an offer or invitation to anyone in any jurisdiction to invest in any Russell Investments Investment product or
use any Russell Investments Investment services where such offer or invitation is not lawful, or in which the person making such offer or
invitation is not qualified to do so, nor has it been prepared in connection with any such offer or invitation.
Unless otherwise specified, Russell Investments is the source of all data. All information contained in this material is current at the time of issue
and, to the best of our knowledge, accurate. Any opinion expressed is that of Russell Investment, is not a statement of fact, is subject to change
and does not constitute investment advice.
The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally
invested. Any past performance figures are not necessarily a guide to future performance.
Any forecast, projection or target is indicative only and not guaranteed in any way.
Any reference to returns linked to currencies may increase or decrease as a result of currency fluctuations.
Issued by Russell Investments Limited. Company No. 02086230. Registered in England and Wales with registered office at: Rex House,
10 Regent Street, London SW1Y 4PE. Telephone +44 (0)20 7024 6000. Authorised and regulated by the Financial Conduct Authority,
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