One thing is for sure, 2019 will not be a dull year. We expect more headlines and drama on trade but would pay more attention to underlying policy direction at both the Federal Reserve and Chinese authorities, as bigger markers for improved fortunes across Asian markets.
Shakespeare once said, “present fears are less than horrible imaginings.” As we come to the close of 2018, we have observed equity markets turn double-digit returns to losses, an aggressive rise in interest rates and a modest increase on the perception of escalating tensions surrounding the world’s two largest economies.
In addition, we have to consider the eventuality of a prolonged trade war. But China would be able to mitigate its impact initially via a combination of monetary and fiscal stimulus, helping offset the impact of tariffs to a certain extent.
Credit markets didn’t perform in line with the expectations we set at the beginning of the year and disappointed most investors.
The potential hangover from the monetary binge of QE continues to weigh on global equity markets as we head towards 2019. The turning of the calendar will do little to change this.
Once again, the Federal Reserve (Fed) policy has proven itself to be the key determinant of global liquidity, and 2018 was clearly tight.
As we reflect on 2018, we would all agree that Trump and his trade policies dominated the conversations and dictated some of the major moves in the financial markets around the world.
We believe 2019 will be an important year for active selection or alpha and our focus will be on delivering on stock selection returns by picking quality companies who are resilient in growth amid a rising risk environment.
So many developments have occurred since we last met in September, but the major ones were the surprising collapse in oil prices mostly due to geopolitical factors, the U.S.-China trade and BREXIT conflicts becoming increasingly intractable, and that aspects of the global economy showed occasional signs of moderation.
Global growth remains desynchronized, with China, the Eurozone and Japan continuing to show further signs of moderation, while the US remains relatively robust.
The MSCI AC Asia ex Japan (AxJ) Index gained 5.3% in USD terms in November, despite persistent concerns over global growth and a slide in technology stocks.
The S&P/ASX 200 Accumulation Index returned -2.2% during November.
The Australian bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index) was up 0.24% over the month, outperforming Australian equities which fell over 2%.
Global growth remains desynchronized, with China, the Eurozone and Japan showing a further moderation in growth, while the US remains robust.
The late 1990s and mid 2000s were periods that appeared characterised by above trend growth in much of the OECD and ‘unexpectedly’ low rates of inflation, a combination that was blithely described as the ‘Goldilocks Economy’.
Earth’s largest single geographic region, Asia represents approximately 60% of the planet’s population and is one of its fastest growing economic areas. The region had more billionaires in 2017 than anywhere else and it will represent 57% of middle-class consumption by 2030.
Over the past year Australian house prices have seen 12 consecutive months of decline, the longest streak of persistent falls in over 20 years.
Volatility is back in a big way in 2018. A large increase in the VIX is showing an annual level not witnessed since 2007. The sell-off that started in October appears to have been triggered by a number of negative technical forces in the USA coming into effect at the same time, which impacted global markets.
One of the pleasures of getting older is that you start to have proper grown-up conversations with your children.
The US economy is enjoying its second-longest growth cycle in history and is on the way to becoming the longest on record.