“We’re thinking about what’s next,” said Brian Jacobsen, multi-asset strategist at Wells Fargo Asset Management. “At what point are we going to start getting worried that there’s too much of a disconnect between somewhat weak fundamentals and this positive and strong optimism.”
One quantum of solace cited by some bulls this year remains on point: Positioning in cash equities remains cautious, belying the 20% gain for the MSCI All-Country World Index and the 25% rise in the S&P 500. (For perspective, the American gauge rose 30% in 2013, 26% in 2003 and 27% in 1998).
Global equity funds have posted $188 billion in outflows this year through Wednesday. Nearly four-fifths of rich investors recently surveyed by UBS Global Wealth Management expect volatility to increase and 55% think there will be a significant market sell-off before the end of 2020.
Asset managers including UBS Global Wealth Management’s Maximilian Kunkel are more sanguine.
“We don’t expect a sudden big drop in markets,” Kunkel, the firm’s chief investment officer for Germany,” said in an interview. “There’s still a lot of room to come back into equities after the massive outflows we’ve seen, particularly if investors start to see that growth is more durable than expected.”
If that’s the case, a burning question for 2020 is whether the buy-side will finally share the sell-side’s love for European equities. The likes of JPMorgan Chase & Co., Credit Suisse Group AG and Morgan Stanley strategists project the latter will outperform U.S. stocks. And with the S&P 500 surging to new highs this week, its valuation on a forward price-to-earnings basis swelled to the highest level since February 2018.
But with feeble data across the euro area, investors aren’t convinced. Both Goldman Sachs Private Wealth Management and UBS Global Wealth Management reckon American equities will rule supreme next year, citing better U.S. corporate earnings.
“This week’s strength in risk assets continues the theme of investor sentiment improving from the high certainty of a recession view a couple months ago to something much more sanguine on global growth,” said Nathan Thooft, head of global asset allocation at Manulife Investment Management. “However, given where assets have repriced to -- more muted responses are likely in 2020.”
--With assistance from Yakob Peterseil.
This article was provided by Bloomberg News.