Peering into the great unknown is always a hazardous business, even just a matter of days ahead. But financial commentators have to earn a crust and ducking out of a forecast for the new year is not an art I have perfected.
Rather than come up with unlikely predictions that are interesting to consider and don't have to be exactly right — as Saxo Bank does every year with its outrageous predictions list — I will focus on upcoming events that any contrarian investor should investigate. Here's my take on what to look out for in 2020:
The second leg of the gold and silver rally kicks off
After cracking the glass ceiling of its five-year trading range, gold has been treading water since September. However, slowing global economies signal lower global interest rates ahead and precious metals will gain. Gold prices usually move up as interest rates move down. After 10 years of economic recovery, we are overdue for a correction in financial markets and the recent industrial and export data out of Germany, Japan and China has been poor. Only US figures remain mildly positive.
A recovery in the pound as Brexit confusion lifts
However, there will be a slump in the UK economy for the same reason. The UK pound looks oversold with the issue that cheap sterling has also been keeping the UK economy afloat during the Brexit chaos. For exporters at least a resolution will not be good news. Avoid British stocks because as sterling rises the profits of multinationals listed on the FTSE will go down. This is as sure as the law of gravity.
Wall Street finally corrects
This will be by at least 20 per cent and possibly as much as 50 per cent. Can anybody seriously disagree that the huge gains on Wall Street in 2019 — while economic fundamentals like profit growth have been weakening — are not a blow-off spike in share prices? This is a classic top-of-the-market indicator, as are the highest share price valuation levels since the Great Crash of 1929 and investor Warren Buffett’s record cash pile.
Oil prices recover to $85
This will be thanks to Saudi-led output cuts, mounting financial pressure on US shale oil producers and a weakening US dollar. The Saudi Aramco initial public offering will be proven to be well timed. Central banks will release cash into their economies to counter financial market corrections during 2020. Oil producers will keep supply under control and the squeeze on Iran will continue. US shale producers will struggle to raise capital in more difficult financial markets, despite the oil price hike.
UAE house prices finally start to turn up
The successful Saudi Aramco IPO will be the catalyst to stimulate investment activity across the Gulf countries in 2020. UAE real estate is at a cyclical low and attractively priced for emboldened speculators. End users will also realise that the time to buy is now with motivated sellers vanishing. What goes down must come up eventually. Year-to-date Dubai Land Department data shows property transactions up 12 per cent against the same months of last year, while Property Finder highlighted an 11-year high for a single day of property transactions on November 24.
UAE shares to outperform every other stock market in the world
A rising oil price, faltering performance in major financial markets, pre-Expo 2020 hype and Bloomberg’s popular morning TV programme out of Dubai, should all contribute to a rally from current depressed levels.
Expo 2020 starts to fuel up UAE FDI
Don’t underestimate the greatest show on earth. This is the real deal with over 200 nations represented and more related advertising spending than any other recent event in the Gulf States, except perhaps the Saudi Aramco IPO. UAE foreign direct investment was $10.3 billion (Dh37.83bn) in 2018 and the multiplier-effect means that its value to the local economy is far higher. Expect 2020 to be big for UAE FDI.
Western and Asian real estate markets see widespread falls
Low interest rates since the global financial crisis have moved mountains in global real estate. These markets have been losing momentum in 2019 and 2020 will see price cuts. Markets move in cycles and even a continuation of super low interest rates may not be enough to keep property prices so high.
Central banks to cut interest rates
Bond markets will enter a new bear phase. Recent Fed interest rate cuts have perversely had the effect of raising interest rates on 10-year treasuries. This could signal that monetary policy is reaching the limit of its effectiveness. Besides investors were only ever going to put up with such derisory returns on bonds for so long. Maybe this is it. But US treasury bonds are supposed to be the safest of investments. This will no longer be the case, benefiting precious metals as a rival safe haven.
Donald Trump is re-elected president
But he won't strike a deal with China before the US election in November. Having previously failed on forecasts for Mr Trump’s election and the Brexit referendum, I could be shooting myself in the foot here. But there is not a Democrat front-runner that impresses and Mr Trump is a master tactician. Making it look as though it would be an economic disaster not to re-elect him — and make a deal with China — is his trump card.
Peter Cooper has been writing about Gulf finance for two decades
