Saxo Bank’s ‘outrageous predictions’

A Democrat moves into the White House, Asia Launches a new reserve currency and a rate hike by the European Central Bank are some of  – what it calls “outrageous predictions” – by Saxo Bank for 2020. The predictions focus on a series of unlikely but underappreciated events which, if they were to occur, could send shockwaves across financial markets. These are not Saxo’s official market forecasts for 2020, but represent a warning of a potential misallocation of risk among investors who typically see just a 1% likelihood of these events materializing.

• A Democrat becomes US President and the party controls both Houses

This leads to big healthcare and pharma stocks plunging by 50% as the marginal Trump voter base fades, with the Democrats winning the popular vote by over 20 million. The dominant demographic of millennials is more liberal on issues like climate change, medicare and social inequality.

• Asia’s digital reserve currency takes the US dollar index down by 20%

Asia launches new reserve currency in a move away from US dollar dependence and tanks the US dollar 30% versus gold. The AIIB-backed Asian Drawing Right, or ADR, with 1 ADR equivalent to 2 US dollars, becomes the world’s largest currency unit.

• ECB folds and hikes rates

In January 2020, the new president of the ECB, Christine Lagarde points out that maintaining negative deposit interest rates for a longer period could seriously harm the soundness of the European banking sector. The ECB reverses its monetary policy and hikes rates on January 23, 2020. This first hike is followed by another a short time later that quickly takes the policy rate back to zero and even slightly positive before year-end.

• The sudden arrival of stagflation rewards value over growth

The iShares MSCCI World Value Factor ETF leaves the FANGS in the dust, outperforming them by 25% as the incoming US recession will require the Fed to super-size its balance sheet beyond imagination to finance massive new Trump fiscal outlays to bolster infrastructure in hopes of salvaging his election chances. Wages and prices rise sharply as the stimulus works its way through the economy, and the pressure on yields and inflation puts zombie companies out of business.

• Oil and gas industry will be a surprise winner

The combined forces of lower prices and investors avoiding the black energy sector have pushed the equity valuation on traditional energy companies to a 23% discount to clean energy companies. In 2020, we see the tables turning for the investment outlook as OPEC extends production cuts, unprofitable US shale outfits slow output growth and demand rises from Asia once again. The clean energy industry will simultaneously suffer a wake-up call.

• South Africa electrocuted by state-run utility debt

USDZAR rises from 15 to 20 as the world cuts credit lines to South Africa as it continues to bail out troubled utility ESKOM. The fiasco will push the country to default as external debt has doubled to over 50% of GDP in the last few years.

• US President Trump announces America First Tax to reduce trade deficit

The US economy struggling with deficits and failing to push China to step up its farm product purchases, slaps a tax on all foreign-derived revenue. Eyeing polls showing a resounding defeat in the 2020 US Presidential election, Trump launches the America First tax, replacing all tariffs with a flat value added tax of 25% on all gross revenues in the US market that are sourced from foreign production.

• UK nominal growth doubles to 8%

After an overwhelming election win, Boris Johnson exits the European Union and launches an unprecedented fiscal blast which propels the FTSE 15%. The UK’s largest fiscal stimulus program since World War II widens fiscal deficit to 6% of GDP but the BoE contains inflation and the economic growth rises to 8% in 2020 from 3.5%. The MMT policy makes the FTSE among the best performing among European indices and triggers massive investment inflows into UK.

• Sweden gets to work to better integrate its immigrants and overstretched social services

A massive and pragmatic attitude shift washes over Sweden, driving a huge fiscal stimulus and steep rally in SEK.

• Hungary leaves the EU

Increasing tensions with the EU over invocation of Article 7 citing Budapest’s restrictions on free media, judges, academics, minorities and rights groups, leads to Hungary’s departure. Its currency, the forint (HUF) hits 375 in EURHUF terms over fears the disengagement could trigger a reversal of capital flows as EU companies reconsidered their investment in Hungary.

You can send your forecasts to umesh.desai@asiatimes.com

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