The year 2019 has been one with two interesting halves. One half saw an increased economic activity after Central Banks introduced aggressive monetary policies in major economies such as the US, Australia and Europe. The other half saw a drag on major economies due to increased tensions between the US and China, concerns in Europe and the UK and major unrest in the Middle East. I think the only constant we all had was uncertainty.
2019 started off with many Investors worried about markets, following sharp declines we experienced in the last quarter of 2018 as Central Banks started to pull back Quantitative Easing (QE). Most major markets were facing recessionary pressures – we have an inverted yield curve, China’s growth slowed considerably as a result of the US-China trade tensions and the Euro Zone had significant unrest in most major cities. This led to Central Banks stepping back in. Eventually, the US Fed and the Australian Reserve Bank both cut rates by 75bps to its current rate of 1.5%-1.75% and 0.75% respectively. Europe Central Banks reduced rates to -0.5% and continued to pursue aggressive QE programs. These actions led to some significant turn around in most asset classes across major economies.
As cash rates were significantly low, we saw investors troop to Bonds and Credits leading to an uplift in returns to about 7-9%. Both Australian and International shares grew in excess of 20% and Emerging markets saw a modest 14% gain. Listed property markets grew between 20-29% both locally and internationally and we saw increased modest growth for the Australian property markets as well.
We also saw significant levels of risk in the markets. In May and August, the world markets fell significantly by about 6%. We’ve also seen asset values at higher levels than normal and continued geo-political risks in the world.
As you know, no one has a crystal ball to predict the future. But this is what we know…
We know that the US Congress has voted to impeach President Trump and the US will be in an election year in 2020. We also know that the US is almost at full employment, household and corporate debt remains low and inflation remains low. This gives more room for monetary policy actions if required.
We currently have a ceasefire with the trade tensions between the US and China. Should this continue, then one element of uncertainty will be off the table in 2020. The Chinese government has enough room to introduce aggressive fiscal policies to stimulate the economy again with reduced tensions between them and the US.
In Australia, 2019 was a year of slow growth, low wage growth, high unemployment and low inflation. If this continues into 2020, we know the Reserve Bank has room to further cut rates to try and stimulate the economy. We’re optimistic that the government’s planned tax cuts, when introduced, will provide the stimulus required to drive the Australian economy or at the very least, stop it from going into a recession.
Europe continues to have low economic activity, with low inflation, low economic spending and social unrest across some major capitals. We continue to wait to see what the last rounds of monetary policy and Brexit will deliver for the UK and Europe as a whole.
What does this all mean?
This tells us one thing. Global market uncertainty remains at a high and may continue in the early to mid-2020s. What worked 10-20 years ago, may not work in the next year or even next decade. We need a new set of strategies to tackle our new normal – low interest rates, high volatility, high asset values, low correlation trends, low wage growth.
It is important to continually review your strategies to ensure you’re taking advantage of the new normal. We’re excited about 2020 and what it has install for us. We hope to celebrate your success with you.
Wishing you and yours a Wonderful Christmas!!!
This report may contain information sourced from research through our research house Lonsec. It may also contain our in-house assessment of the Australian and global economic outlook. This information is general in nature and does not take into account your personal circumstances. Before you implement any changes to your current situation, we recommend you speak to us.