Outlook: What’s ahead for investors in 2020?


Paul Xiradis

The macro, top-down view

“Our macro view ensures that we anchor to what really matters in markets regardless of the barrage of information and misinformation out there,” says Xiradis. “Working closely with our Chief Economist and our local and global equity teams, we are able to distil the macro signals that matter and work our allocations across sectors accordingly.”

Xiradis and his team at Ausbil see the following key signals for 2020 as being important for investors in setting their portfolios for the year ahead.

The economy

“We see interest rates, which have been the primary source of stimulus together with QE, to remain lower for longer, which is the key message we are reading in the pronouncements of global central banks,” says Xiradis. “We expect governments to add more fiscal stimulus to the macro equation, here and overseas, just as Christine Lagarde, President of the ECB, called for recently,” says Xiradis. “This could also include increased infrastructure spending. An Australian dollar trading in the range of 67 to 72 cents is likely to ensure commodities and other Australian exports remain attractive and support the local economy.”

GDP growth

“With this background of stimulus as context, we see the world, the US and Australian economies continuing on the growth path, delivering growth at trend in 2020,” says Xiradis. “The undeniable importance of China in this equation, and their ability to maintain growth is what will help support Australia and world growth, as we see China maintaining GDP growth of over 6% in 2020. Of course, this is predicated on China and the US reaching workable agreements on trade, but we think resolution will come faster the more the standoff hurts for both economies, especially given their recent phase-one agreement.”

Some risk in the economy

“There are clearly the typical geopolitical and economic risks in the economy that we monitor closely, the most salient we see as being the risk of deflation, the breakout of a currency war, and the risk that the US and China don’t finalise agreements on trade,” says Xiradis. “In terms of equity valuations, there remains a clear risk around any rise in official rates, but we have seen very clear intentions expressed by central banks that for the foreseeable future, rates will remain low or on hold. That said, a scenario where rates rise would likely align with more exuberant economic growth so in such an environment one would expect business to continue to thrive in a manner supportive of equities. We remain vigilant on the direction of rates and we are nimble enough to respond if we see any radical reversal of the prevailing view.”

The equities, bottom-up view

Company earnings growth

“Our bottom-up view for 2020 is for some moderate EPS growth, with the year remaining a stock-picker’s year, focusing on high quality companies that benefit from economic growth and a steady but lower AUD,” says Xiradis.


“We see resources as a potential highlight for 2020 with stronger EPS growth than for financials, REITs and industrials as they benefit from global stimulus, ongoing Chinese demand, and a preferentially lower AUD,” says Xiradis. “In the last resources boom, which peaked in 2011, mining companies invested large amounts   of capex in capacity. Now, these companies have excess capacity and lower capex expense which is translating into higher free cash flows and stronger earnings growth across the sector as the world’s demand for resources continues.”


“In 2020, we expect the implications from the Royal Commission to continue to roll through, with a relatively low growth in EPS for banks and other financials,” says Xiradis. “Mitigating this drag on earnings is the fact that the housing market bottomed in May 2019, and has shown strong resurgence through 2019, supporting more credit activity for banks, and a more buoyant consumer.”

Bond proxies

“Bond proxy stocks were beneficiaries of the Fed pivot in December 2019, and since then they have run hard and values are now stretched. With rates on hold and potentially still falling, these values remain high and we have reduced positions accordingly,” says Xiradis.


“In this lower for longer environment, with a background of continued growth, we are seeing opportunity in quality industrials with lower multiples but a good EPS growth outlook, including cyclicals,” says Xiradis.

What is exciting in 2020?

“We see 2020 for the potential to find alpha in quality stocks that are benefiting from the background of lower rates and some stimulus,” says Xiradis. “The potential for resources in this environment is particularly compelling. We hope to see Brexit settle with the emphatic election of Boris Johnson as Prime Minister, and the potential for the US and China to resolve their issues in the 2020 election year, following their recent phase-one agreement,” says Xiradis.

“We expect to see Australia enter its 29th year   of uninterrupted growth without recession, and as markets stabilise a little, assuming no major geopolitical surprises, the stage is set for active managers to find more alpha generating opportunities. As a stock picker, this really excites me,” says Xiradis.

By Paul Xiradis, Executive Chairman, Chief Investment Officer and Head of Equities

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