2019 Recap and 2020 Outlook

2019 Market Performance:

Most markets are ending with returns above, in some cases, two times above their long-term average. Driven by

  • Very low market baseline @ 2018 year end

The market overstated recession risk in 2019 which drag down the market a lot.

  • Extraordinary broad monetary easing this year

One year ago (2018 Dec.) that Fed believe in the automatic QT (Quantitative Tightening), that they will be on automatically QT no matter what data said. Also, there will be sequential rate hike in 2019 and 2020, and the market tank immediately. Followed by a series market tanking, the Fed not only stop the QT but start to trigger the fourth round QE (Quantitative Easing) using some semantic to hide the truth 🙂

Looking back my 2018 market recap, I failed to pick up the tone change in Fed meetings. Also, missed the upward trend of A-share between Jan. to Apr.. Besides these, I have spent significant cost to hedge the downside risk of US equity but end up with nothing. 🙂

2020 Market Outlook:

  1. Stay long US equity during 2020 Q1, rotate to non-US after Q1.
  2. Global growth to return to above-trend, characterized by fading US outperformance, a European step-up and stable Mainland China.
  3. US Equity will still outperform FICC with caveat of high valuation on equity already. There are 100% gap between US and non-US stock ( I was mentioning the big divergence starting last year, and the market were suspecting whether US stock will drop down or non-US stock will pick up to close the gap. The truth is, none of them, the gap exists for a year). There is really little opportunity in FICC given the extreme low return and small hope on recession hedging.
  4. By region, OW EMU, Japan and EM vs US & UK. It is more tactical, since in the long run, China and Europe should be negatively impacted more from the de-globalization.
  5. By country, OW China and Brazil. – Details see figure 1
  6. For US equity, OW Energy.
    1. Energy is one of the worst performing sector in 2019, and oil price is seized by strong dollar. While, these may change in 2020.
    2. Energy sector remains cheap and opens a gap with oil price
    3. Energy sector is a good way to hedge middle east political risk
  7. Bitcoin between 5000-10000, with potential to be safe haven in the long run. Given low long term yield, less effectiveness in anti-inflation hedge using gold, high cost of index hedging, bitcoin has the potential to attract more capital inflow. The catalyst would be severe political risk, say US-China trade war and other geopolitical events.
  8. Gold is long term circle, 5-8 years, since the miner and factory need to be reopen. Silver has a big gap, will chase up.
BrazilOWContinued macro policy change: cyclical recovery to boost earnings growth, lower policy rates and reform agenda
ChinaOWDe-risking investment allowing valuation multiple expansion, lesser risk on the USD-CNY front and light equity positioning
IndonesiaOWPrudent macro policies. Lower inflation and government spending should support domestic demand
RussiaOWCheap valuations, high dividend yield; diminishing downside risks to lower oil prices and hard-to-quantify geopolitical risk
South KoreaOWMeaningful earnings growth acceleration driven by the technology sector
figure 1

2020 Downside/Upside Risk:

  1. On the downside:
    1. Application of Hong Kong SAR human rights bills scuttles US/China trade deal;
    2. China slows to 5.5% rather than stabilizes;
    3. Democrats nominate a progressive and sweep 2020 elections;
    4. US inflation surprises to upside, triggering destabilizing move in US rates and USD;
    5. US corporate profits fail to revive, margins continue narrowing;
    6. UK fails to agree FTA with EU by end-2020.
  2. On the upside:
    1. US/China agree full tariff rollback;
    2. Democrats nominate a centrist;
    3. Fed shift to average inflation targeting pushes real rates negative;
    4. US oil output slows materially while OPEC+ over-delivers;
    5. Germany or China agree material fiscal stimulus.

Long Term Downside Risk:

  1. The growth of national debt is substantially bigger than the growth of GDP, which means US economy growth is driven by debt. That’s not a real GDP growth, not the one we had after WWII.
  2. Repo market raised the concerns of supply issue. When the repo market — used by banks and hedge funds to borrow short-term funds to finance their trading positions — saw rates surge to five times their normal levels in mid-September, it briefly rattled Wall Street, reviving memories of the 2008 crisis when funding markets similarly seized up.
  3. The pattern of United States has leading the world economy has reached to its end. US is leading the other market by over 100% in the past ten years, and I believe the pattern will happened again, which means that US stock will not be able to go back to current level again in the short term.
  4. Prolonged low/negative interest rate is problematic.It is fatal for financial institution in the long run by having negative interest rate. If you look at the banks and insurance company in Europe, they are significantly underperform because they cannot make money by providing positive interest rate product under a negative interest rate environment.97% of negative yield debt are owned by central banks and financial institution that regulated or required to own the negative rate debt. So nobody really own negative yield bond. Luckily Jay Powell insisted not having negative interest rate for US, otherwise, the global capital would find nowhere to go. Also, that’s one of the reason why US dollar is strong in the past few years, and USD index is remarkably stable in 2019.
  5. Social polarization is alarming. Means of production will changes people’s life innovatively, and lots of unskilled workers will be left behind after the revolution of means of production. While the property relations have to do with how the wealth get split out. However, they change very slow, not in revolutionary way or even resist changing in a evolutionary way. Because the people benefit from the property relation and have the power, they don’t want to give it up.


EM 还是有一些机会,中国某些行业估值还比较低的。比如某些细分行业的小龙头和低估的票,如上海机场等。


外资也看中国一些股票, 中国股市和美股correlation还是比较低的;同时很多标的还是增长比较快的,比美国很多标的更好,所以有投资的价值。




最近,中国的pmi指数都在连续回正,大概率表现经济已经触底并开始反弹。中国之前担忧pork price太高导致inflation高企,所以央行可能会tightening,但是1月1日降准0.5%符合了市场预期,也相当于央行表态了。2019年生下来的货币政策子弹,2020会释放出来。所以这两天A股港股很high。

2018 Market Recap

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One response to “2019 Recap and 2020 Outlook”

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