Credit Suisse Says ‘Extraordinary’ Rally Can Extend Into 2020

(Bloomberg) --

Investor appetite for risk that has sent equity markets to record highs has the potential to extend into next year, according to Credit Suisse Group AG.

Although 2019’s rally in bonds and stocks will be hard to match, riskier assets can still post further gains as sentiment improves, said Walter Edelmann, chief global strategist at the Swiss lender.

“In the shorter term, the sentiment has improved a lot but if we think more about the next six months, there’s still room for improvement,” said Edelmann in a phone interview. “The returns in equities from here, of course, are more limited, but so far what we’ve seen this year has been an extraordinary rally, and on top of that, we can see further gains.”

Credit Suisse recommends sticking with U.S. equities as well as looking at emerging-market hard-currency bonds. The key reason? Monetary easing by global central banks will support macro growth and a recovery in manufacturing, spurring a further improvement in investor sentiment.

“Investors really need to look for returns by taking risk -- there’s no way out of that,” Edelmann said.

The Swiss bank’s recommendation appears to match the market mood, with the latest Bank of America Corp. survey showing that investors are flocking to stocks because of fear of missing out on the rally following improved growth expectations. Equity bulls like Goldman Sachs Private Wealth Management believe that the main returns still come from being overweight in U.S. stocks.

The S&P 500 gauge surged to a historic high and global equities rallied over the past few weeks as optimism that the U.S.-China trade talks are progressing fueled appetite for riskier investments.

At the same time, Credit Suisse is underweight investment-grade and government bonds due to their elevated valuations following this year’s gains.

“Especially on the fixed-income side, we don’t see a repeat of such extraordinary high returns,” he said.

Like JPMorgan Asset Management, Credit Suisse is looking at alternative assets to help clients who are hunting for yields. To get higher returns, investors need to hold instruments such as real-estate funds or frontier stocks for longer, or about five years, Edelmann said.

To contact the reporter on this story: Ksenia Galouchko in London at kgalouchko1@bloomberg.net

To contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Jon Menon, Namitha Jagadeesh

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