2019 Year in Review

Key Themes for the Year

  • Best Year for Global Equity Markets in Six Years

  • Australian Market Hits Record High; Best Year in Decade

  • Emerging Markets Lagged Developed; But Surged in Q4

  • Global Fixed Interest Posts Best Year Since 2014

Global Summary

  • Global equity markets, after suffering their worst performance in seven years in 2018, staged a remarkable turnaround in 2019 to deliver returns of around 27% in AUD terms. In aggregate, it was the best year since 2013, with many indices at record highs.

  • The sturdy gains through the year came against a steady drumbeat of negative media headlines relating to the US-China trade war, the UK’s prolonged battle over leaving the EU and forecasts of sharply slower global growth in the coming year. Media commentary mid-year was also dominated by debate over the significance of an inversion in yield curves (where longer-dated interest rates dip below shorter-dated rates) and whether this was a signal of an approaching recession.

  • Sentiment improved in the final quarter as the US-China trade tensions eased, the UK general election outcome resolved some uncertainty over Brexit and central banks proclaimed that downside risks to growth had eased a little.

  • By the end of the fourth quarter, global stock markets, as measured by the MSCI All Country World Index, had risen nearly 27% to reach record highs. The US market again led the pack to gain around 30%, but other developed markets also posted double-digit gains. While emerging markets again lagged developed markets over the year, they accelerated in the final months to eclipse their developed counterparts over the fourth quarter.

  • Australia’s benchmark S&P/ASX-300 index in November passed the previous record highs set before the global financial crisis and ended the year up more than 23%. The local market has risen for eight years of the past decade and this was its best year since 2009.

  • In sectoral terms, healthcare was the top performer in Australia, while financials lagged the field amid continued bad publicity in the wake of the Hayne Royal Commission’s final report.

  • In other developed markets, information technology, industrials and REITs were among the top performing sectors, while energy was among the worst.

  • For currencies, it was a relatively stable year. The US dollar index, as measured by Reuters, recorded its smallest-ever annual move, gaining just 0.24% over the full year.  The Australian dollar moved in a range of 67.0 to 72.7 US cents over the year, rallying in the final weeks of December to end just above 70 cents.

  • Global fixed interest markets had their best year since 2014, although gains were pared in the final month as risk appetites returned with news of the US-China first phase trade deal. The Bloomberg Barclays Global Aggregate Bond index (hedged to AUD) rose more than 7% over the year.

World Indices Wrap Up

Developed Country Annual Performance

Australian Sector Return

Takeouts

  • The performance of equity and fixed income markets in 2019 highlights once again the folly of using news headlines as an indicator of future investment performance.

  • Calendar 2018 ended with intense volatility and a wave of pessimism by commentators responding to ongoing news events like the US-China trade war, Brexit and the IMF’s downgrades of the global economic outlook.

  • The chart below shows the growth of wealth from a dollar invested in global share markets over the decade of the 2010s, using the MSCI World IMI in AUD terms as a proxy.

  • While market volatility can create anxiety for some investors, the record shows that reacting emotionally and changing long-term investment strategies in response to immediate news and short-term declines can prove more harmful than helpful.

  • Now, as a new year begins, the media’s focus inevitably turns to speculating about possible developments in 2020. Recently, we have seen many opinions about possible path of geopolitical events, economic trends, currencies, commodities and interest rates.  While it is natural to have an opinion on any of these issues, it is worth remembering that all these views and expectations from market participants are already built into prices.

  • The news that moves prices changes every day. And even if you could forecast events, you still need to anticipate how the market will react.

  • The major news headlines for 2019, listed below, are not offered to explain market returns, but to remind investors about the importance of maintaining a long-term perspective and avoiding making investment decisions purely on today’s news.

JANUARY

  • British pound rebounds as Brexit deal rejected in parliament

  • IMF cuts global growth forecast for second time in three months

  • Euro area back on the brink of recession

FEBRUARY

  • Hayne Royal Commission urges shake–up of Australian financial sector

  • Federal Reserve flags end to balance sheet run–off, patience on rates

  • US trade chief sees long–term China challenges

MARCH

  • Trump’s second summit with North Korea’s Kim collapses

  • Boeing in crisis as carriers ground 737 Max

  • Federal Reserve signals no further rate hikes in 2019

APRIL

  • IMF Downgrades global economic outlook; sees risks to downside

  • Easter Sunday bombings in Sri Lanka leave more than 250 dead

  • Massive fire consumes historic Notre Dame cathedral in Paris

MAY

  • Reserve Bank of NZ cuts official cash rate to 1.5%

  • Defying pollsters, Liberal-National Coalition retains power in Australian election

  • China-US tensions heighten as US applies 25% tariff hike on Chinese imports

JUNE

  • Reserve Bank of Australia cuts official cash rate to 1.25%

  • UK PM Theresa May resigns as Conservative Party leader amid Brexit stalemate

  • Anti-extradition bill protests in Hong Kong draw more than a million people

JULY

  • Reserve Bank of Australia cuts official cash rate to 1.0%

  • UK Conservatives choose Boris Johnson as PM as Brexit deadline looms

  • IMF cuts global economic growth forecast to lowest rate since GFC

AUGUST

  • US Federal Reserve cuts interest rates for first time since GFC

  • China lets yuan weaken, escalating trade war and hitting stocks

  • US Treasury yield curve inverts for first time in 12 years

SEPTEMBER

  • US-China trade war escalates as Trump slaps tariffs on $110B of goods

  • Spike in ‘repo’ market rate sparks US Federal Reserve intervention

  • US House of Representatives launches Trump impeachment inquiry

OCTOBER:

  • RBA cuts cash rate to 0.75%; IMF slashes Australia GDP outlook

  • US Federal Reserve cuts rates for third time in 2019; signals pause

  • UK PM Boris Johnson secures Brexit deal with EU

NOVEMBER:

  • Trump implicated in campaign to pressure Ukraine to investigate rival Biden

  • Unprecedented chaos in Hong Kong as street protests escalate

  • Westpac accused of 23m breaches of anti-money laundering laws

DECEMBER:

  • UK Conservatives secure Brexit with landslide election win

  • Trade war eases as US and China announce “phase one” deal

  • Eastern Australia engulfed by severe bush fires

Brendon VadeAll, Annual Review