As the world slowly recovers from the Covid-19 pandemic, Newton Real Return global strategist Brendan Mulhern outlines three macro trends which could help to shape and define markets in the coming years.
- Depreciating dollars
As the US Federal Reserve continues to ease more aggressively than its counterparts, the US dollar has appeared vulnerable for the first time since the global financial crisis. Should this weakening become a longer-term trend, future investment outperformance is likely to come from different parts of the market than over the previous decade.
- Modern monetary theory
Although there will be equity market winners and losers from the US presidential election outcome, the extraordinary nature of the current backdrop may make the result less significant than it would otherwise have been. Neither major party is making any attempt to subscribe to fiscal prudence, with the unprecedented stimulus creating a very real chance that we see a sustained acceleration of goods and services inflation.
- China’s latest credit boom
As China’s economy ground to a halt, monetary and fiscal policy shifted in favour of economic stability at the expense of financial stability. Credit growth has accelerated, stimulating the housing market and supporting infrastructure investment. Notwithstanding ongoing trade tensions, we believe the conditions are in place for Chinese equities to continue to outperform, with increasing commodity consumption likely to support commodity exporters and the materials sector.
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