Last week we reported on some fretful bears worrying over 2020 — yet who are still sinking most of their cash into stocks — this week the bulls at State Street say it’s all good mate.

The US financial services giant is picking that 2020 will be a good year for Australian equities, thanks to low interest rates, but they’re worried the good returns of 2019 aren’t being backed by earnings.

The All Ords and the Small Ords returned 22 per cent and 16 per cent this year, respectively, fuelled by easing interest rates at home and abroad.

The health and tech sectors were the best performing but are now also the most expensive corners of the ASX, wrote State Street head of portfolio management Bruce Apted in a note.

Read: The health sector has been the ASX’s top performer in 2019, but could a recession stop it in its tracks?

He says earnings growth will be the most important indicator to watch for in 2020.


The risk in 2020

Apted says ongoing RBA support will be good for equities, but investors should expect “increasingly stretched valuations as fundamentals disconnect from returns”.

“With market valuations on the expensive side we believe it will be especially important in 2020 to focus on companies that can deliver on earnings growth and to maintain a valuation discipline in your stock selection,” he said.

“This disconnect, combined with persistent trade risk and the prospect of recurrent bouts of volatility, will lead us to maintain a defensive posture in our equity allocation.”

Apted says North American shares are more likely to have stronger earnings behind them, and European stocks are even better — albeit weighed down by the continent’s constant political and structural uncertainty.

He’s waiting for something to happen, such as easing of China-US trade tensions, before moving into shares in emerging markets.


Lol what recession?

Globally, the bank is picking 2020 to be a year of growth.

Global chief investment officer Rick Lacaille says if the world economy can sidestep “substantial risks”, low rates, low inflation, strong global services and solid consumer spending should keep everything moving forward.

Senior investment strategist Raf Choudhury says a global economic recovery will continue in 2020 and the US should continue to perform well.

“Australian economic performance is expected to see improvement through 2020 as headwinds from trade fade, the housing market stabilises and the government embarks on renewed fiscal spending,” he wrote in a note.