Market Insights: Global Market Review

February 18

Ndzinge

Global markets ended 2019 significantly higher as a US China trade agreement to gradually reduce tariffs, increase agricultural purchases, and ensure intellectual property protection was reportedly reached, while the UK’s elections delivered political stability, clearing the way for Brexit.

In local currency terms, Global Equities were up 9.1% and 27.3% for the quarter and twelve month periods respectively, under pinned by renewed confidence in global economic activity with broad global Central Bank easing and global PMIs stabilising. Positive sentimental so buoyed emerging markets, with MSCIE merging Markets up 11.7% and 18.6%,respectively, for the three- and twelve-month periods. Within equities, China’s CSI 300 stole the show, increasing 39.2% for 2019.

In 2019, the US Dollar rose 0.2% against its major trading partners. The Euro lost more than 2%, ending the year at 1.12 against the US Dollar. Conversely, the Japanese Yen strengthened 1% in 2019 to the 108.6level. The British Pound, on the back of amore certain Brexit trajectory, rose 3.9% in2019 against the greenback. Currencies in emerging markets also broadly gained against the US Dollar in 2019: notably, Russian Ruble strengthened 12%, and the Indonesian Rupiah and Mexican Peso appreciated nearly 4%. The Rand and Pula appreciated 2.4% and 1.0% respectively against the US Dollar in 2019.

 

With some major downside risks to the global economy having been avoided, and market concerns over a possible recession diminishing, we believe that global growth will maintain momentum in the coming months.

Even though we already became more bullish in Q4 2019, we have again upgraded our 2020 forecasts for the US, the Euro Area and China. For our base case scenario, we expect 2020 global growth to increase to 3.3%, up from 3.1% in 2019.

Going forward, global equity markets look past their prime; yet we still expect some upside for equities in 2020. Our 2020 outlook is riding on the resolution of a number of key political developments, including:

  • US-China trade tensions;
  • Brexit developments;
  • the US Presidential Election; and
  • ongoing geopolitical risks.

With the outcome of these binary events potentially having significant ramifications for equities, we expect volatility to remain heightened as investors try to efficiently price in these risks. Elevated valuations underscore the need for active management; with portfolio construction and investment sizing the key to outperformance as macro headlines have the potential to generate sharp investment-style and sector rotations in the market.

As we look forward into 2020, there are still a number of risks that could knock our forecasts off course. We have already been reminded of major geopolitical risks so far this year and this needs to be monitored very closely. Oil prices spiked after the US strike on the Iranian Military Commander, Qassem Soleimani, though they have since subsided. Higher oil prices are not helpful for global growth, and any further escalation in tensions could put that at risk.

Meanwhile, important trade negotiations will continue to take centre-stage in 2020. These include the US-China trade talks moving towards their second phase, the ongoing trade discussions between the US and the EU and the start of talks between the EU and the UK. The US election in November will also increasingly pre-occupy investors as we move through the year.

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Alphonse Ndzinge
Managing Director