A vintage year for global stock markets

What a difference a year makes. Last January, sentiment was at rock bottom. Today we are enjoying the afterglow of the best 12 months for global investors since the financial crisis. A year ago, the outlook for global growth was poor and the weakness of the economy looked like being exacerbated by the Federal Reserve’s determination to normalise US monetary policy. The first half of 2019 saw the Fed back away from higher rates, however, and then implement three consecutive cuts in the cost of borrowing between July and September. A reduction in trade tensions between the US and China during the autumn kicked recession fears into the long grass – until after this year’s Presidential election anyway. 2019 was not a great year economically, or in terms of corporate earnings, but investors’ expectations were so low in January that there was only one way for markets to go.

 

% (as at 31 Dec) 2014-15 2015-16 2016-17 2017-18 2018-19
MSCI World -0.3 8.2 23.1 -8.2 28.4

 

Past performance is not a reliable indicator of future returns. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment.

Source: Refinitiv, as at 31.12.19, with income reinvested.

Another year of dominance for Wall Street

What you can’t see from the chart above is the dispersion of returns from markets around the world. Once again, it was a bumper year for the US, which has rewarded investors consistently since the financial crisis. In recent years, it has never paid to bet again Uncle Sam. China had a storming first quarter as its more volatile market bounced back from a dreadful fourth quarter at the end of 2018. Closer to home, it was all about Brexit. The market picked up after the general election when it became clear that the country had rejected Jeremy Corbyn’s radical agenda. But the uncertainty of our extended departure from the EU has taken its toll on sentiment. The UK is cheap compared to most other markets, but a tricky 12 months ahead could keep it that way. Diversification continues to make sense, but it’s hasn’t been essential in a year when most investments delivered a good return.

 

% (as at 31 Dec) 2014-15 2015-16 2016-17 2017-18 2018-19
S&P 500 1.4 12.0 21.8 -4.4 31.5
FTSE 100 -1.3 19.1 12.0 -8.7 17.3
Nikkei 225 11.0 2.4 21.3 -10.3 20.7
STOXX Europe 7.3 4.7 10.1 -11.3 29.3
Shanghai SE 9.3 -12.3 6.6 -24.6 22.4

 

Past performance is not a reliable indicator of future returns. When investing in overseas markets, changes in currency exchange rates may affect the value of your investment. Investments in emerging markets can be more volatile than other more developed markets

Source: Refinitiv, as at 31.12.19 with income reinvested.

Everyone’s a winner

The most important driver of investment returns in 2019 was the Fed’s U-turn over the summer. The mid-cycle pause for US interest rates enabled central banks around the world to follow suit. Easier monetary policy was the fuel for a broad-based rally that delivered gains for shares, bonds and commodities alike. Falling interest rates underpinned confidence that recession could be avoided, boosting shares. Lower rates fed through into reduced bond yields too, pushing prices higher. And the easing of trade tensions helped oil and copper rise as expectations of a growth slowdown receded. What was perhaps unusual was the simultaneous rise of gold and silver. The continuing enthusiasm for these traditional safe havens shows that confidence remains fragile. We should enjoy the gains while they last and prepare ourselves for the reality that all good things eventually come to an end.

Source: Refinitiv, total returns as at 27.12.19.

Past performance is not a reliable indicator of future returns. When investing in overseas markets, changes in currency exchange rates may affect the value of an investment. Investments in emerging markets can be more volatile than other more developed markets. For full 5 year performance figures please see Market data.

 

 

Acknowledgements:

II would like to thank the many knowledgeable and experienced people within the wider Fidelity organisation who have helped me develop the ideas in this Investment Outlook. The views here are based on the house view of Fidelity’s investment team, overseen by Paras Anand, Anna Stupnytska and Wen-Wen Lindroth. However, it is written for a UK personal investing audience and the ideas are linked explicitly to the Select 50 list of our preferred funds, which we consider the best way for our investors to implement the ideas discussed in the Outlook. I would like to thank the following for their assistance: Gary Monaghan, investment director in Hong Kong; Jeremy Osborne, investment director in Tokyo; Leigh Himsworth, portfolio manager in the UK; Neil Cable, Head of Real Estate; Kasia Kiladis, investment director for US equities; Natalie Briggs, investment director for European equities.

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