Fidelity Sees Earnings Revival Goosing Stock Rally in 2020

(Bloomberg) -- Global earnings growth will return in 2020, boosting equities, and investor attention will shift to fiscal policy as central banks run out of ammunition to stimulate the economy, according to Fidelity International.

Stocks should improve modestly next year as corporate profits climb about 8% amid an economic recovery, according to Romain Boscher, global chief investment officer for equities. He favors shares from Europe and Japan, which tend to have lower valuations than those from the U.S.

Next year will be “a tipping point for the cyclical recovery,” Boscher said at an investor event in Singapore on Friday. “There are good reasons on the monetary side and even on the more technical side,” such as the potential for inflows.

American stocks have had a standout year, with the S&P 500 Index surging 26% through Thursday, compared with a 16% gain in the MSCI World ex-U.S. Index, as the U.S. economy held relatively steady and the Federal Reserve cut rates three times. The S&P 500 closed at a record high Thursday.

Still, Fidelity’s preference for international stocks dovetails with that of Morgan Stanley economists including Chetan Ahya, who said in a note Thursday that the fading effects of U.S. policy support will help shares in the rest of the world bounce back.

Here’s a selection of Fidelity’s other investment views:

• Treasury inflation protected securities are among the cheapest assets in bond markets as investors continue to underestimate the potential for faster inflation
• Positive on local-currency emerging-market duration as high real rates allow central banks to cut borrowing costs
• Global economy likely to avoid a recession
• Yen looks cheap among G-10 currencies and remains a good hedge in risk-off scenarios
• Bank stocks look attractive on valuations and could do well if there’s a resurgence in inflation

--With assistance from Brendan Walsh.

To contact the reporters on this story: Joanna Ossinger in Singapore at jossinger@bloomberg.net;Ruth Carson in Singapore at rliew6@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, ;Nicholas Reynolds at nreynolds2@bloomberg.net, Cormac Mullen, Cecile Vannucci

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