With global confidence returning, a stock market boom is on the cards for 2020

As the trade war recedes, investors will feel better about market prospects. With bond markets offering rock-bottom returns, the pressure to switch into stocks will be compelling, giving the equity market a bigger boost

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A trader works on the floor of the New York Stock Exchange on December 13. After a year rocked by the trade war and fears of a hard Brexit, stock market investors have much to look forward to in 2020. Photo: AP

Published: 1:00am, 31 Dec 2019Updated: 1:14am, 31 Dec 2019

As 2020 looms, spare a thought for the small investor with some tough decisions to make on asset allocation in the months ahead. Rarely have the markets been so divided on the investment outlook, making it very hard for investors to place safe bets on the future.

It really depends on where you stand along the edge of the risk-return frontier – either global equity markets remain extremely buoyant in 2020 or else the ship’s going down with all hands. The good news is that optimism should be well rewarded as risk aversion gradually fades away.

Global growth expectations should surprise on the upside over the next 12 months. The US and China are both backing down over the trade war as pressure grows to mend fences and rebuild global confidence. If recent olive branches are any hint of what’s to come, it should be back to business fairly soon.

As soon as global trade flows normalise and optimism returns, consumers and businesses around the world will feel much better about their future spending and investment plans. The removal of such a large part of the paralysis that has plagued the global outlook in the past few years will play a big part in cranking up recovery expectations for many years to come.

With a quick cessation of trade war hostilities, growth prospects should look a lot brighter for the major economies. By the end of 2020, US gross domestic product growth should be steering closer to 3 per cent rather than 2 per cent.

Growth for China will be heading back towards 7 per cent as domestic recovery gains traction and demand for exports picks up. Stronger world trade and extremely loose global monetary conditions also mean growth in Europe and Japan will surprise on the upside.