Stock market returns in 2019 ended on a high with the MSCI EM index adding over 18% (in U.S dollar) for the year, with a 12% gain in the final quarter. Despite this very strong total return, emerging equities still under performed their developed market counterparts. In particular the US delivered a blockbuster year at 31% (as measured by the S&P 500 Index). It was a highly eventful year characterized by a material increase in volatility and a moderation in GDP growth. Elections, protests, trade wars and interest rate policy were just some of the bigger events we witnessed in the year where the trade war in particular influenced sentiment.
The ongoing US-China trade dispute dominated headlines where market sentiment often seemed to follow the ups and downs of the negotiation (or perhaps just Presidents Trump’s tweets). There were many “false starts” which corresponded to big swings in the market. We did see a material de-escalation in December where both sides agreed to a “phase one deal”, which proved a strong tailwind into year end. Perhaps a trade “truce” is a more apt description given the detail around several elements of the agreement (particularly in relation to intellectual property and technology transfer) remains sparse at best. Having said this, further tariffs have been avoided for now while the US will roll back certain measures in exchange for increased agricultural purchases by the Chinese. There is little doubt the dispute is harming global trade so this rollback is certainly welcome. Chinese equities ended the year with a gain of over 23%.
Fears over a potential US recession spurred the US Federal Reserve (FED) to revert back to cutting interest rates in 2019. They cut the benchmark rate by 25bps three times which was in stark contrast to the four hikes they made in 2018. These actions proved a strong contributor to sentiment and perhaps eased the pressure on some of the more indebted emerging nations. It also somewhat curtailed the march forward of the US dollar with several emerging market currencies gaining ground. The Russian Rouble was strongest, gaining over 11% versus the greenback.