'The big picture is equities should perform in 2020'

Investment strategist looks past news-cycle driven anxieties for a fundamentally positive global economic outlook

'The big picture is equities should perform in 2020'

This year might see some geopolitical market shocks, but one leading analyst is looking past the anxiety.

Heightened US-Iran tensions might only be the start of what’s coming in 2020. Trade disputes are still simmering, Brexit is moving into a new stage, and the “Trump factor” might see the US President make big, distracting, and possibly destabilizing moves to pull the news cycle away from his impeachment trial or the 2020 presidential election. 

Myles Zyblock, chief investment strategist at Dynamic Funds, isn’t letting fear about possible shocks impact his broader outlook. Citing the example of recent unrest in the Middle East, he showed that since WWII, when the US engages in an armed conflict, markets have an initial knee-jerk negative reaction but within 12 months, they’re up overall. We’ve seen the shock reaction already, and Zyblock expects an equity upturn.

“What's going to happen in the markets is much of what we've seen,” Zyblock told WP. “Short-term volatility that doesn't really change the long-term structural outlook for markets.”

In the Iran case, the only thing Zyblock sees derailing a broad equity bounceback would be if oil prices rise above $90, which at current global supply rates would only happen if Iran or the US shut down the Strait of Hormuz.

Zyblock isn’t discounting the possible impact of future shocks in 2020, but he’s not advising we take cover either. It’s his view that it’s a little bit better to come late to the party than engage in wild speculation. Rather he thinks investors should wait and see what big picture indices say. In his view, the big picture view is a positive one.

“We think we're on the cusp of an early stage of an economic growth recovery,” Zyblock said. “We think we're starting to see the early signs of return when you have some tensions being released in terms of trade. I think that will allow [last year’s] interest rate cuts and fresh fiscal stimulus to act more effectively. You are going to get a turn in growth from a turn in manufacturing, trade, capital spending and corporate earnings.

“I think that this will be a positive year for markets, maybe not as big as last year, but I think it will be a positive year.”

Zyblock is betting on emerging markets to perform this year, expecting more positive news on trade and manufacturing. With around 20% of emerging market GDPs resting in manufacturing, Zyblock is especially optimistic.

Zyblock’s positivity is backed up by a keen eye on global economic indices. He’s looking at the OECD’s reliable global leading indicator that he thinks is starting to hook upwards, showing a strong likelihood of bigger growth numbers over the next three to six months. Global purchasing manager indexes, as well, are turning upwards, backing up Zyblock’s hopes for manufacturing.

Though the news might look scary in 2020, Zyblock thinks the big picture economic outlook is a positive one that will drive markets upwards despite any short-term shocks investors might face.

“I think if you have a 9-12-month time horizon, you buy equities now,” Zyblock said. “Equities are a volatile asset class and trying to time every little week in them is sort of a game. To me, in that time frame it looks like there's stimulus coming down the pipeline, it looks like US-China trade frictions have softened a bit, it looks like growth is likely to turn for the better. That means earnings are going to turn for the better. So instead of trying to trade these little mini cycles I think it's best for investors out there to just focus on the big picture. The big picture is equity should do okay this year.”