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Trump trumped: will fundamentals win the day in 2020?

When looking ahead to next year it is easy to focus on the many uncertainties around the world, but we prefer to focus on what we consider a certainty: the continued, rapid digitalisation of the financial services industry. We have already seen huge disruption on this front in the last five to ten years and we expect this to continue creating new investment opportunities through the next decade and beyond.

Taking a step back, there are several factors investors are concerned about from British politics and the Brexit process to Donald Trump, threats of impeachment, the 2020 US election race and global trade tensions. And, all the while, there is a growing consensus that the global economy is slowing.

However, whilst we do keep an eye on these issues, we prefer to evaluate company fundamentals and trends without being too hamstrung by the global headlines. There will always be wars and worries and 2020 is no different, but as renowned author Nassim Taleb said: “trust none of what you hear, some of what you read, and half of what you see.”

Above all else, it is our conviction in digitalisation as a major structural change that we think will define performance over the long-term. We will continue to focus on investing in companies that are disrupting the industry, investing heavily in their IT systems, shifting business models towards digitalisation, implementing data analytics and cyber security and building ecosystems. Companies that can fine tune their offering to deliver seamless, low cost solutions to both their existing clients and the new generation of tech savvy customers will likely dominate. Importantly, this is just the start – financial innovation is a long-term structural tailwind still in its formative stages. For example, the use of cash in the UK is on the decline and by 2026 it is predicted cash will be used for just 21% of transactions down from 62% in 2006. In the US, 62% of people think that they may see the death of cash within their lifetime while internet adoption is rapidly increasing accessibility to mobile banking in regions such as India, opening up services to those previously ‘unbanked’. Add to this an environment of low interest rates and the outlook for digitalisation becomes even more compelling.

At a macro-economic level, we remain focused on central bank policy as their actions have a direct impact on financial companies. How the central bankers play their cards depends largely on how Western governments, in particular, react to a slowing global economy. In 2020, it is quite possible we will see the current US administration announce a package of fiscal stimulus measures in order to kickstart a US economy where growth has begun to stall. If this happens, it is likely Europe will follow suit especially given the European Central Bank’s (ECB) recent call urging euro zone members to adopt expansionary fiscal policies. Such policies would stimulate the global economy, but also prompt a rise in inflation expectations, potentially resulting in the yield curve righting itself to a more traditional upwardly sloping shape. This would be beneficial for banks, financials and fintechs as they are once again able to benefit from the spread between short term and long-term rates.

Overall, we are confident backing the companies taking technology seriously as we enter the new year. We believe that we will best serve clients by investing in the companies of the future; the enablers and adopters creating and using cutting-edge, world-changing financial technologies that we think will flourish over the long-term.

Guy de Blonay , December 2019

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Strategy CPR AM has recently launched CPR Invest – Global Disruptive Opportunities | A look back at an accelerating phenomenon: disruption

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