The rally in the first quarter lifted the US and other markets to a six-month high, while sovereign bond prices have mirrored investors’ renewed confidence by tumbling from their recent two-year peak. The uber-pessimism of the fourth quarter of 2018 has turned into fresh hope that gains can be made when trade wars and Brexit have been pushed out of the way.
One of the reasons 2018 turned out to be such a disappointment for equity investors was the underwhelming performance of the Chinese economy, the ramifications of which were felt as far afield as Germany.
While most equity markets had a rough year, the performance of emerging markets and eurozone stocks were among the worst. So for 2019, some of the most important questions facing investors are what caused the slowdown in China last year and when the economy is likely to bounce back.
Stockmarkets around the world enjoyed their strongest start to a year for three decades. The S&P 500 index rose 7.8% and 3% in January and February respectively, the best first two months of any year since 1991. That run was broken in the first week of March, as stockmarkets fell on disappointing economic news, particularly US jobs data, downward growth forecasts from the OECD, and the announcement that the European Central Bank feels the need to launch fresh stimulus.
Stockmarkets surged at the start of the year as they bounced back from their December lows. Progress through February has been volatile, but the upward trend continues, despite major macro concerns.
What does 2019 have in store for the investment trust sector?
Investors will be hoping for a better year after a difficult 2018. However, while there is cause for optimism, 2019 looks likely to be another year in which the macro dominates the micro. The political and economic drivers that have delivered a rollercoaster ride over the past year haven’t gone away. Expect more thrills and spills.
Markets started 2018 full of optimism. The US economy delivered stellar performance – buoyed by US president Donald Trump’s tax cuts, which propelled a surge in growth and corporate earnings – while the US unemployment rate hit an almost 50-year low. An upward drift in inflation was gradual, so there weren’t any big surprises from the US Federal Reserve, which hiked interest rates in line with its guidance.
It would be easy to imagine that the US/China trade war and the US Federal Reserve’s resolve to tighten monetary policy, which have been the two big fears hanging over the US stock market throughout 2018, are reaching some sort of stasis. The market certainly rejoiced when Fed chairman Jay Powell made the dovish comment that interest rates are “just below” the range of rates considered neutral. The Dow Jones Industrial Average index shot up by 600 points in one session, its best single-day gain since March.
Over steak, crispy chocolate and a 2014 Nicolás Catena Zapata Malbec, President Donald Trump and his Chinese counterpart Xi Jinping agreed to stand down from their impending trade war and direct their officials to focus on resolving bilateral trade problems.
Emerging markets have continued to struggle in the second half of 2018 amid an environment of heightened global equity-market volatility and geopolitical and policy risks.
However, Chetan Sehgal, lead portfolio manager of Templeton Emerging Markets Investment Trust, believes that the pullback presents long-term investors with opportunities amid what he believes is a market overreaction.
Markets have been a bit jumpy in October and, as ever, investors have looked for a suitable rationale, ranging from trade wars and slowing economic indicators, to higher interest rates.
In this case, the most likely cause was higher US interest rates, which was the reason behind the sell-off at the beginning of the year.