Investment outlook 2020 Asset allocation for the new decade

UBS Asset Management held its investment outlook 2020 roadshow across Asia (Singapore, Thailand, Hong Kong and China) in early December.

29 Nov 2019

Fiscal policy to dominate in the 2020s

Evan Brown, Head of Multi-asset Strategy told investors that investing in the new decade "should be quite different" to the 2010s.

Central bankers are worried they don't have enough space to ease. It'll have to come from fiscal policy.

Evan Brown

No recession in 2020

Our view is that we will not see a global recession in 2020. But whenever the next recession does arrive in the coming decade, neither the US Federal Reserve (the Fed) nor other major central banks appear to have sufficient room to ease policy rates enough to reinvigorate growth and inflation.

In previous cycles going back to the 1950s, the Fed's response to a collapse in demand has been to cut the Federal Funds rate by an average of 550 basis points.

At the time of writing, the Fed has room for only another 175 basis points of cuts, having publicly stated its opposition to moving below the zero lower bound and into negative interest rates.

Fed has cut 550 bp on average in recessions historically

UBS Asset Management, Macrobond as at December 2019.

In the Eurozone, Japan and Switzerland, policy rates are already negative, giving respective central banks next to no ammunition in the next downturn via the policy rates channel. Quantitative Easing (QE) could be increased again, but like official policy rates, the impact of QE on the real economy and on asset prices has diminished over time. This leaves major central bankers with a limited and increasingly ineffective toolkit with which to address the next recession.

From monetary to fiscal policy

So when the next downturn does come, we do not believe that monetary policy in isolation will be able to perform its usual counter cyclical role.

Instead, we see the burden of providing the major stimulus to demand and inflation landing on government spending. Elected officials will therefore face a stark choice: let the economy stagnate, or spend. Given the very obvious electoral benefit incentive, we don't believe that many senior politicians will deliberate very long before embracing the fiscal mantra.

Economic arguments for fiscal policy playing bigger role

But there is more to the fiscal story than political expediency. In our view, the social and economic arguments for fiscal policy playing a significantly greater role in the overall policy mix in the 2020s are strong. We believe that current low borrowing costs provide further momentum. Indeed, with the cost of borrowing below current growth rates in major economies, it is theoretically possible for governments to borrow to fund fiscal stimulus and to address social imbalances without increasing overall net budget deficits. We also sympathize with the view that any fiscal multiplier (the benefit to the economy for every USD of government spending) may be greatest precisely at the point where monetary policy stimulus is at its least effective. If we are not already at that point, we do not believe that it is very far away.

If the arguments appear compelling, there are still hurdles to overcome. The blurring of the lines between elected officials and central bankers is far from straightforward and, at first glance, appears unlikely to evolve swiftly. We would highlight Germany in particular as a country with the scope for a significant fiscal stimulus to boost growth, but with little apparent political will currently to counter the balanced budget requirement enshrined in German law to progress such a move.

But the political backdrop can also change quickly. The pressure on governments including the UK, Germany, Japan and elsewhere to borrow and spend more is increasing - witness the promises of the major parties ahead of the UK general election. The finer details of a significant fiscal package are expected in the coming months in Japan where the government is already seeking to spend its way to higher growth.

Our conclusion then on government spending is more general than specific in nature: even if a major increase in fiscal spending isn't necessarily imminent across all major economies, the direction of travel for the coming decade seems very clear indeed.

Why will fiscal spending push yields higher?

Hear Evan explain in the video below:

Fiscal policy doesn't happen in a vacuum.

Subscribe now

Perspectives matter. Tune in to our insights.

More insights for investment outlook 2020

Where to invest in 2020?

Late cycle does not mean end cycle

Singapore Retail Investors


This website is not intended for and should not be accessed by persons located or resident in any jurisdiction where (by reason of that person's nationality, domicile, residence or otherwise) the publication or availability of this website is prohibited or contrary to local law or regulation or would subject any UBS entity to any registration or licensing requirements in such jurisdictions. It is your responsibility to be aware of, to obtain all relevant regulatory approvals, licenses, verifications and/or registrations under, and to observe all applicable laws and regulations of any relevant jurisdiction in connection with your entrance to this website. Each investment product and service referred to on this website is intended to be made available only to residents in Singapore.

UBS reserves the right to change, modify, add or remove content on the website as well as these terms at any time for any reason without notice. Such changes shall be effective immediately upon posting. You acknowledge that by accessing our website after we have posted changes to these terms, you are agreeing to these terms as modified.

The materials on this Website are distributed by UBS Asset Management (Singapore) Ltd (company registration number: 199308367C), which is licensed by Monetary Authority of Singapore ("MAS") in Singapore pursuant to the Securities and Futures Act (Chapter 289 of Singapore). UBS Asset Management (Singapore) Ltd is part of the Asset Management business division of UBS Group AG. UBS Asset Management (Singapore) Ltd together with UBS Group AG and its group companies shall collectively be referred to as "UBS".

The information contained in this Website has been prepared and is intended for general circulation. The information does not constitute advice and does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The investment services or products referred to in this Website may not be suitable for all investors. UBS recommends that you independently evaluate particular investments and strategies and seek independent advice from a financial adviser regarding the suitability of such investment products, taking into account your specific investment objectives, financial situation and particular needs, before making a commitment to purchase any investment products. Investment involves risks. You should be aware that investments may increase or decrease in value and that past performance is not indicative of future performance.

The information contained in this Website is not an offer to buy or sell or the solicitation of an offer to buy or sell any investment product or to participate in any particular trading strategy. UBS, its officers and/or employees may have interests in any of the investment products referred to on this Website by acting in various roles. UBS, its officers and/or employees may receive fees, commissions or other benefits for acting in those capacities. In addition, UBS, its officers and/or employees may buy or sell investment products as principal or agent and may effect transactions which are not consistent with the information set out in this Website.

You fully understand and agree that, by making available this Website, UBS should not be construed as making: (a) any endorsement of any investment product referred to in this Website; (b) any representation that UBS has performed any due diligence on any investment product referred to in this Website; or (c) any representation that the information in this Website is complete, accurate, clear, fair and not misleading. The use or reliance on any such information contained in this Website is at your own risk and any losses which may be suffered as a result of you entering into any investment are for your account and UBS shall not be liable for any losses arising from or incurred by you in connection therewith. UBS is not responsible or liable for the accuracy and completeness of any such information or the performance or outcome of any investment made by you after receipt of such information, irrespective of whether such information was provided at your request.

Using, copying, redistributing or republishing any part of this Website without prior written permission from UBS is prohibited. Any statements made regarding investment performance objectives, risk and/or return targets shall not constitute a representation or warranty that such objectives or expectations will be achieved or risks are fully disclosed. The information and opinions contained in this Website is based upon information obtained from sources believed to be reliable and in good faith but no responsibility is accepted for any misrepresentation, errors or omissions. All such information and opinions are subject to change without notice. A number of comments in this Website are based on current expectations and are considered “forward-looking statements”. Actual future results may prove to be different from expectations and any unforeseen risk or event may arise in the future. The opinions expressed are a reflection of UBS’s judgment at the time this document is compiled and any obligation to update or alter forward-looking statements as a result of new information, future events, or otherwise is disclaimed.

UBS does not hold out any of its officers and/or employees as having any authority to advise you, and UBS does not purport to advise you on any investment product. Any investment will be made at your sole risk and UBS is not and shall not, in any manner, be liable or responsible for the consequences of any investment.

This Website and its contents are provided on an “as is” and “as available” basis. UBS does not warrant: (a) the accuracy, timeliness, adequacy commercial value or completeness of this Website or its contents, and expressly disclaims any liability for errors, delays or omissions in the contents, or for any action taken in reliance on the contents; (b) that your use of and/or access to this Website or its contents, will be uninterrupted, timely, secure or free from errors or that any identified defect will be corrected; (c) that this Website or any content will meet your requirements or are free from any virus or other malicious, destructive or corrupting code, agent, program or macros; (d) that any information, instructions or communications posted or transmitted by you through this Website is secure and cannot be accessed by unauthorised third parties; and (e) that use of the contents in this Website by you will not infringe the rights of any third parties. No warranty of any kind, implied, express or statutory, including but not limited to the warranties of non-infringement of third party rights, title, merchantability, satisfactory quality or fitness for a particular purpose and freedom from computer virus or other malicious, destructive or corrupting code, agent, program or macros, is given in conjunction with this Website.

You hereby agree to indemnify UBS and any of its officers, employees or agents against, and to keep UBS and any of its officers, employees or agents harmless from, any claims (actual and threatened), settlement sums, liability, loss, damages, costs (including solicitor and client costs and expenses (legal or otherwise)), charges, expenses, actions, proceedings, whether foreseeable or not which we may sustain, suffer or incur, directly or indirectly out of or in the course of or in connection with any the following: (a) any use of this Website or the contents by you, or any part thereof; (b) UBS having made available the Website; (c) any breach of these Terms by you, however arising; or (d) any negligence, act or omission, wilful default, unlawful act, fraud and/or misconduct on your part or violation of any rights of another person or entity by you.

The funds referred to in this Website have been authorised or recognised by the MAS for sale to the public in Singapore (the “Funds”). Copies of the registered Singapore prospectuses ("Prospectuses") referred to in this Website have been lodged with and registered by the MAS. The MAS assumes no responsibility for the contents of the Prospectuses. The registration of the Prospectuses by the MAS does not imply that the SFA or any other legal or regulatory requirements have been complied with.

MAS registration is not a recommendation or endorsement of a Fund nor does it guarantee the commercial merits or performance of such Fund. It does not mean that a Fund is suitable for all investors nor is it an endorsement of its suitability for any particular investor or class of investors. UBS Asset Management (Singapore) Ltd has been appointed as the representative for the Funds in Singapore for the purposes of performing administrative and other related functions relating to the offer of Shares under Section 287 of the Securities and Futures Act, Chapter 289 of Singapore (the "SFA") and such other functions as the MAS may prescribe.

You may not assign your rights under the Terms without our prior written consent. UBS Asset Management (Singapore) Ltd may assign our rights under the Terms to any third party.

No person or entity who is not a party to the Terms shall have any right under the Contracts (Rights of Third Parties) Act, Chapter 53B of Singapore or other similar laws to enforce any term of the Terms regardless of whether such person or entity has been identified by name, as a member of a class or as answering a particular description. For the avoidance of doubt, this shall not affect the rights of any permitted assignee or transferee of the Terms.

These Terms shall be governed by, and shall be construed in accordance with, the laws of Singapore. The courts of Singapore shall have exclusive jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with these Terms and, for such purposes, you agree to submit  to the jurisdiction of the courts of Singapore. Each party hereby waives any objection which it might at any time have to the courts of Singapore being nominated as the forum to hear and determine any proceedings and to settle any disputes and agrees not to claim that the courts of Singapore are not a convenient or appropriate forum.

© UBS 2021 - the key symbol and UBS are among the registered and unregistered trademarks of UBS. All rights reserved.