What are the best investments for 2020?

Investment trends to watch in 2020

'Two in three global investors believe markets now are driven more by geopolitical events than business fundamentals such as profitability, revenue and growth potential' – UBS Global Wealth.

Geopolitical events have dominated the landscape in 2019, and most of these remain unresolved and will continue to influence markets as we enter the new year. Some of the top events that could significantly impact investors and traders in 2020 are:

• US-China trade war: By far the biggest concern for investors around the globe. The world’s two largest economies have continued to slap more tariffs on one another’s goods whilst they try to hash out a new trade deal that can satisfy both countries. There are still concerns that the US’s attempt to overhaul trade with other partners, including the EU, could weigh on growth and opportunities this year.
• US presidential election: Undoubtedly one of the biggest events for global markets in 2020 is the US election that will be held in November, meaning the campaign will come increasingly into the fold as the year goes on. US President Donald Trump will try to win his second term in office, with Elizabeth Warren currently touted as the best opposition. It could be a particularly volatile election considering the threat of impeachment against Trump remains a possibility.
• Brexit: The UK’s proposed departure from the EU remains far from resolved. The December 2019 UK general election means nearly every possibility has been put back on the table – including cancelling Brexit altogether, a second referendum or the exit deal struck by UK Prime Minister Boris Johnson earlier this year. The one bright spot is not a single party is campaigning for no deal, which is the option that businesses generally fear most.
• Slower economic growth and fears of a recession: Globalisation is under threat, protectionist and populist policies are on the rise, and global economic growth continues to slow while fears of a recession are growing. The International Monetary Fund's (IMF’s) global growth forecast in 2019 is just 3% - the lowest since the financial crisis. Growth in 2020 is expected to pick up again to 3.4%, but the majority of investors expect a global recession to kick-in before the end of 2020, according to UBS.
• Security threats: Tensions remain high between the west and some nations. Concerns over the threat of North Korea have subsided but could easily be reignited, while relations with Iran remain fragile (with the mood in the Middle East having generally soured this year).
• Political unrest: Voters are making their anger heard in several major countries around the world. France’s ‘Gilet Jaunes’ protests have been going for over one-year and the battle between Hong Kong protestors and the Chinese government are growing increasingly violent. Other countries where voters are making their voice heard include Argentina and Spain.

With so many of this year’s concerns leaking into 2020, financial markets hope they know what they will be dealing with in the new year and that new surprises will emerge. All-in-all, 2020 could be a year of volatility for markets. This should produce opportunities for traders, while investors need to make sure they are well prepared.

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Top investments for 2020

We look at the best investment ideas for 2020, including stocks to watch and other trading opportunities including gold, oil and currency pairs.

Investing in shares in 2020

Stock markets have experienced strong increases this year despite the headwinds that have lingered over the world economy. However, the growth in the second half (H2) of the year has been far less pronounced than the first and there is widespread agreement that the bull market’s 11-year run is coming to an end, suggesting 2020 will be a tougher year for stocks.

Investing in growth and value stocks

The uncertain economic and political outlook suggests growth will be harder to come by in 2020, which may dampen investor appetite for growth stocks that rely on share price appreciation. However, there are still industries that boast strong fundamentals over the long term. For example, 2020 could be a catalyst for the legal cannabis market as the issue could become an important feature of the US election and acceptance in Europe continues to grow. The heightened awareness of climate change has also prompted governments to step up their green policies, which could prove to be a boon for renewable energy stocks.

Growth for other industries should continue to be steady over the coming years. This includes stocks developing new technologies such as automation, cybersecurity, artificial intelligence, and augmented and virtual reality. With more countries offering 5G technology – which is vital for most of these new breakthroughs in technology – tech stocks could be propelled higher in 2020.

What 5G stocks are worth investing in?

Mining companies, oil firms and pharmaceutical firms should also be on the radar of investors looking for stocks that could pop higher in 2020. Look for stocks that are set to reach key milestones next year, like starting up production or securing key regulatory approvals. For example, small-cap Scotgold is planning to start commercial production from its gold mine in Scotland, while Irish biotech firm Amarin is hoping the US Food & Drug Administration will allow its Vascepa drug to treat new conditions in early 2020.

Value stocks could also be a good investment for 2020. Now could be a good time to look for these shares that are fundamentally undervalued by the market. If you can find good quality stocks that have fallen out of favour over the short term, it could provide a cheap entry point. For example, there is currently a strong argument in favour of UK blue-chip stocks. The FTSE 100 has risen less than 10% in 2019 and underperformed virtually every other major international index, mostly because of Brexit. This could suggest that now is a good buying opportunity in the hope of benefiting from any reversal in fortunes, depending on how the election and Brexit pans out.

Read more about the top growth stocks

Investing in income and defensive stocks

Safe stocks that pay reliable dividends will be in demand in 2020 as investors seek refuge from the uncertain political picture, economic slowdown and fears of a recession. However, quality will be key as some historically safe sectors have come under threat or struggled to pay dividends in 2019.

In the UK, for example, big telecoms providers, including BT Group and Vodafone, have had to cut pay outs this year and put the strength of the sector into doubt. Plus, the threat of Labour’s nationalisation plans threatens the future of energy, water, mail and rail stocks – which have traditionally been regarded as the safest and most reliable dividend payers available in the UK market. With staple income stocks off the table, for now, investors may consider looking for other havens for reliable dividends. Large and diversified international businesses such as Johnson & Johnson can offset weakness in one area of the business or country with strength in another, safeguarding dividends. Alcoholic drinks makers like Diageo, which often hold up well during downturns, also remain safe bets for income investors.

Investors should also consider industries that provide vital services or products as they are less likely to see a sudden drop in demand or political attacks. This includes big pharma and healthcare providers, real estate investment trusts, insurance providers and digital payment providers.

Top defensive stocks to protect your portfolio

Investing and trading M&A activity in 2020

The pace of development in technology and tougher economic conditions are among the reasons why mergers and acquisitions (M&A) activity remains high. For example, the automotive sector needs to scale up and share technology if they are to maintain their position as the world turns to self-driving cars, with firms like Tesla revolutionising the industry and new rivals like Alphabet and Uber making headway.

According to an annual survey conducted by consultancy EY, 52% of businesses are actively pursuing M&A in the next 12 months. That is down from 59% in 2018, but above the 45% average reported since 2010. Below is a list of the ten countries where M&A activity is expected to remain the highest, and the top three sectors that have the most appetite for consolidation:

_{(Source: EY)}

You can aim to buy shares in companies that are considered takeover targets in the hope a profit can be made if a bid is made in the future, either by the offer being accepted or because it propels the share price higher. Bidders can also see their share price improve if they try to takeover a rival or peer, but only if the market agrees with the value of the deal and that it will be beneficial to the business. Overall, in the period between a bid being made and a deal being completed, the target tends to benefit more than the bidder.

Trading commodities in 2020

The picture for commodities in 2020 is mixed. The World Bank has a view that, broadly speaking, commodity prices will decline. However, this offers traders an opportunity to profit from falling prices by shorting the market.

'Trade tensions and weakness in global trade, manufacturing, and output growth are weighing on commodity demand. In line with subdued global growth prospects, most price forecasts have been revised down,' the World Bank said in its October update. 'Amid heightened risks of a sharper than expected global downturn, the likelihood of a further slowdown in oil demand, and therefore lower oil prices, has risen. Non-energy prices are projected to fall in 2019 before stabilizing in 2020, although metals prices are forecast to be lower next year.'

The World Bank predicts the following average price for these key commodities in 2020 (as of October 2019):

• Oil price of $58 per barrel
• Gold price of $1470
• Silver price of $17
• Copper price of $6230
• Iron ore price of $80.1

Oil outlook for 2020

Geopolitical risks to supplies remains the key issue for the oil price. The attack on key oil facilities owned by Saudi Arabia – the largest producer in the world – hit prices earlier this year. While OPEC is continuing to cut production with the aim of supporting higher prices, the US is continuing to ramp-up shale output. Meanwhile, demand is expected to weaken, according to OPEC, because of slower economic growth and the rise of alternative fuels (like electric vehicles).

Gold outlook for 2020

The outlook for gold is more buoyant. The uncertainty in the markets has benefited the price of gold, which is regarded as a safe haven metal that stores its value well. With so many ‘known unknowns’ still lingering, gold is expected to hold up well in 2020. Forecasts suggest there is either minor upside or that prices will remain broadly stable next year, ranging from $1450 to $1550.

Best gold trading strategies

Gold looks set to remain a favourite for those looking to avoid any sudden shocks. Investec Asset Management has said the metal will benefit because bonds, also often regarded as a reliable investment, are ‘likely to offer poor defensive properties’.

Trading forex in 2020

The key theme highlighted by several economists and analysts for 2020 is a reversal of the US dollar’s strength. The greenback has been relatively strong for several years and even Trump has said it needs to weaken so American manufacturers and exporters can be more competitive on the world stage. The dollar is the most widely traded currency in the world (most commodities are priced in dollars, for example, and most countries hold cash reserves in dollars too), so it heavily influences the relative strength or weakness against other currencies. Any weakness in the dollar would be particularly beneficial to emerging market currencies in 2020.

'With the US’s relative advantage in terms of growth rates, interest rates and corporate margins set to decline in 2020, combined with the prospect of a polarised presidential election campaign, the US dollar may correct from the position of strength it has sustained for several years,' said Investec Asset Management.

Another currency to watch is the Aussie dollar. Australia’s export market, predominantly of commodities, relies heavily on China. This means AUD is impacted by China’s growth prospects, and could benefit from any resolution to the US-China trade war.

Elsewhere, sterling will continue to offer volatility to traders, particularly in early 2020. If the Conservatives are still in power as we enter the new year then Brexit is expected to be completed sooner rather than later, providing certainty to business and support to the pound against the euro. Morgan Stanley says this is partly because the path to a no-deal has been largely eradicated. The type of Brexit (if at all) the UK gets has recently, in general, had a lower impact on the pound. Instead, hopes of certainty and clarity of any sort are helping support the pound, while delays have weighed on the price.

Morgan Stanley expects the pound to strengthen against both the euro and the dollar in early 2020. ‘Once there is clarity that there would be an orderly Brexit outcome, we expect front-loaded GBP purchases’, says Redeker. ‘As there may be more USD hedges in place, GBP/USD should rally the most. This is further supported by positioning, as investors have been expressing a bullish GBP view against EUR rather than USD’.

Notably, the bank also believes a stronger pound could be beneficial to UK equities because a sharp rise would prompt foreign investors to ‘lift their GBP hedges and invest in undervalued GBP assets’.

How to take a position on the best trading ideas

1. Research the markets
2. Choose what market you want to take a position on
3. Open an account and place your first trade