RIYADH — Stark political choices make the 2020 outlook more difficult to predict, but innovation driven by technology and sustainability will present new winners and losers over the decade ahead, according to UBS Global Wealth Management (GWM)’s new Year Ahead outlook.

UBS GWM’s core recommendations for the year are:

• quality and dividend-paying stocks, as well as domestic and consumer-focused firms that are less exposed to trade and business spending;

• a middle-of-the-road approach to bonds, given very low yields on the safest debt and rising credit risks among high-yield issuers;

• a preference for: precious metals over cyclical commodities; a combination of safe and high-yielding currencies; for low sensitivity to market movements within alternative investments.

Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, said: “Elections, trade tensions and a shifting monetary and fiscal policy mix are likely to define a ‘year of choices’ in 2020. However, investors should also look beyond the next 12 months to a ‘decade of transformation’ where new winners and losers could change how investors allocate capital.”

Ali Janoudi, Head Central and Eastern Europe, the Middle East and Africa at UBS Global Wealth Management, said: "The impact of trade tensions on investment, the slowdown in the Eurozone, and a more challenging backdrop for the energy market remain major risks particularly for Central and Eastern Europe, and oil-driven economies in the larger region. However, on the upside, the scores of CEEMEA countries in global competitiveness and ease-of-doing-business rankings reveal that much progress has been made in recent years, even though more work needs to be done to attract and maintain human talent and capital."

On the prospects for Saudi Arabia, Abdallah Najia, Lead Market Head Saudi Arabia, UBS Global Wealth Management, said: "Saudi Arabia has been proactive in addressing the need to diversify its economy. It has shown a high willingness to adopt reforms and a clear understanding of its pressing need to because of lower energy prices. A coherent and ambitious reform plan should reduce its dependence on energy exports and foster job growth for its young and growing population. Notwithstanding the several risks it is prey to, we think the likelihood that it will achieve these objectives is fairly high.

Over the 2020s, investors will also face a world transformed. Some 790 million people will move to cities. Workforces will shrink by 25 million in the developed world and grow by 470 million in the emerging world. The number of Internet users will rise from 4.3 billion to 7.5 billion.

Sustainability and technology challenges related to these and other factors present opportunities, according to the report. Overall, the top longer-term investment themes highlighted in the Year Ahead report are digital transformation, genetic therapies, and water scarcity.

Furthermore, as 2020 approaches, investors are rallying around global standards that will make sustainable investments in particular more approachable for clients. These include the International Finance Corporation’s Operating Principles for Impact Management, as well as the International Institute for Finance’s efforts to simplify sustainable investing terminology. The latter are supported by both the world's largest global wealth manager, UBS, and the world’s largest asset manager, BlackRock.

In UBS GWM's base case, the global economy will grow 3% in 2020, down slightly from 3.1% in 2019, according to the report. Developed market growth will decelerate from 1.6% to 1.1%, while emerging market growth will accelerate from 4.2% to 4.6%. However, two-way uncertainty is high, driven by choices in geopolitics and policymaking, as well as at the ballot box.

The world will also probably keep a lid on inflation, with global inflation decreasing from 3% to 2.9%. The yield on 10-year US Treasuries will decline to 1.8% by the end of 2020, while Brent crude oil prices will decline to $60 a barrel.

In its base case for 2020, UBS GWM forecasts growth of:

Country 2019 2020

US 2.2% 1.1%

Brazil 0.9% 2.5%

Germany 0.5% 0.6%

France 1.3% 1.0%

Italy 0.2% 0.4%

Spain 2.0% 1.7%

UK 1.2% 0.9%

Switzerland 0.7% 0.9%

Russia 1.0% 1.8%

China 6.1% 5.7%

Japan 0.5% 0.6%

India 5.9% 6.5%

— SG