As the decade draws to a close, it paves the way for reflection after a most eventful year.
After a disappointing end to 2018, January 2019 saw the markets get off to a positive start [read our January market update here] with the US S&P500 index clocking its best performance since October 2015. The companies beating analyst estimates were those centred around luxury goods, a possible result of a spike in Chinese and Asian consumer demand.
The year commenced with an increased level of investor optimism, after the unexpected decision by the US federal reserve to keep interest rates low. Furthermore, it was announced that the artificial economic stimulus (quantitative easing) would remain in place. Although several respected organisations lowered their global growth forecasts, the projections remained positive and broadly in line with market expectations.
The Summer saw continued progress for markets with the US FED under pressure from President Trump announcing 3 interest rate cuts in relatively quick succession. In Europe, the European Central Bank announced a further package of stimulus measures to boost sluggish European economies.
As growth slows and governments struggle to deal with mounting debt burdens, markets around the world have been focused on a race to the bottom for interest rates. For much of the year bond markets have been flashing amber warnings, which has made investors nervous especially as the current bull market becomes long in the tooth.
In respect of continental Europe, Italy stood out. It began the year on the brink of a recession, but after a change of government, Italian bond yields dropped significantly, simultaneously reducing the cost of borrowing. After a period of poor performance, this led to a very strong rally in the Italian stock market, making it Europe’s best performing.
Another flash point in the world this year has been the Gulf region. Increasing political tensions have resulted in sharp fluctuations in oil prices as well as a concern of an escalation into a wider, more threatening, regional conflict.
Hong Kong has faced turmoil as repercussions from ongoing pro-democracy protests plunged the city into recession and showed no signs of abating. Despite this, Hong Kong’s property sector is tempting investors back, despite their shares being hit one of the hardest by the ongoing crisis. The shares of Sun Hung Kai Properties and CK Asset Holdings, two of HK’s big developers, are showing improvement after downs of as low as 9.4% since June.
The main, over-arching issue affecting 2019 has been the progress of the US/China trade dispute. On a short-term basis, markets have ebbed and flowed to reflect the politics, and, in many cases, comments made by President Trump on social media. As the market peaked in the early Autumn a trade deal appeared likely, but as President Trump postponed an agreement, by October the market had fallen significantly.
In December, Wall Street has seen new highs as the tensions between the US and China ebb. The S&P500 climbed by 0.7% with a lead in shares in energy, utilities and healthcare groups. A limited agreement between the two powers has also been struck to pause their trade war and ease pressures on the global economy as the new year begins. The ‘phase one’ deal will see billions of dollars in tariffs removed or delayed.
As the year draws to a close, it appears that the US and China may be edging towards a trade deal at some point in the next year, in advance of the US Presidential Election. Whilst this can in no way be guaranteed, it has given markets some welcome festive cheer. The ‘Santa rally’ has also been boosted following the UK general election, where markets have reacted positively to, at least, some short-term certainty, in respect of the direction of travel. Read our Election 2019 update here.
Outlook for 2020
Geopolitical tension is the central point of uncertainty for global markets and investments going into 2020. The outcome of the US presidential election, ongoing US/China trade dispute and resulting deal or no deal of trade negotiations in respect of Brexit, are continuing potential political headwinds.
Despite anticipated lower returns and uncomfortable transformation periods, more investment opportunities are expected to materialise over the course of the next year. Demographic change is set to help emerging markets and sectors, such as healthcare.
Hand in hand will come continued improvements for the technology markets, with further options in areas such as AI, genetic therapy and 5G.
One of the most exciting investment and growth opportunities ahead is expected to be borne from the shift in consumer preference and government regulation towards more sustainable products and services.
Investors are increasingly focussed on companies which benefit the environment, exercise a high level of social responsibility and demonstrate good corporate governance.
Overall, whilst there will almost inevitably be pockets of volatility, we expect 2020 to be another good year for investment as the low interest rate climate persists and President Trump endeavours to stimulate the US economy to support an election victory in November.
Whilst Boris Johnson’s honeymoon period will undoubtedly end, the discount on UK equities will provide some attractive opportunities as the reality of negotiating a trade deal with the EU becomes an imperative in the second half of 2020.
Please note, this article is our view of markets and does not constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. Overseas investments are affected by currency movements and exchange rates. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch.