Equity markets ended 2019 on a positive note, helping our share price to reach a new high during the month as many developed market indices hit record levels. The rise in markets followed November’s strong performance and capped one of the strongest years for equity markets in recent decades.
Over December, investor sentiment towards trade improved further, with the US and China provisionally agreeing a ‘phase one’ deal – although this has yet to be formally signed. This added to optimism that, despite mixed dataflow, there was likely to be an improvement in the global economy, which will support the outlook for corporate earnings after a disappointing year for profits. In addition, markets were buoyed by central bank indications that policy will remain accomodative. The US Federal Reserve kept rates on hold at its final meeting of the year, as was widely expected by the market, and the updated ‘dots’ plot (a chart that records each Federal Reserve officials’ rates forecast) showed a large majority expecting to keep rates on hold during 2020. In Europe, Christine Lagarde’s first European Central Bank (ECB) meeting proved uneventful, though little change is expected in terms of policy.
In the UK, Prime Minister Boris Johnson’s Brexit election gamble looked to have paid off with the Conservative party, which had campaigned on his renegotiated Brexit deal, celebrating its biggest win in 30 years. The party is aiming to get the withdrawal agreement into law in January 2020, with the aim of ‘achieving’ Brexit on the 31 January 2020. Sterling initially rallied on the result, adding to previous gains, though there were still concerns over another potential ‘cliff edge’ in 2020. Meanwhile, domestically focused equities also made gains.
Emerging markets had a strong month, supported by trade developments, despite weaker domestic demand in China where retails sales disappointed and softness in auto sales lingered. As a result, policymakers have boosted short-term policy support.
In December, both our Europeans and small-cap strategies performed well in absolutely and relative terms, while both our emerging-market strategy and our external US value manager (Barrow Hanley) lagged on a relative basis.
December saw the culmination of a strong year for equities, with double-digit returns made across markets, despite persistent geopolitical challenges. Valuation metrics in a number of areas are reasonable and, providing that growth remains on a positive path globally, 2020 may see continued equity market strength. Nonetheless, the cycle is mature and the bull market in stocks is extended. We expect that volatility will stay heightened in coming quarters, and we continue to invest in a range of diversified underlying stock-selection strategies. We remain well placed to withstand any further short-term volatility in markets.
All information as at December 2019, unless stated otherwise.