Page 16 - Survey 2020: The Star Business

16 THESTAR
www.thestar.co.uk Wednesday,January22,2020
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OUTLOOK
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Positive returns in 2020 but watch out for politics
Despite facing challenges which included USA-China trade tensions, uncertainty surrounding the direction of the US Federal Reserve’s in- terest rate policy, Brexit and riots in Hong Kong, investors in global equities enjoyed a year of tremendous gains in 2019, erasing the memory of the previous year when losses had been widespread.
A good part of last year’s returns reflected a rebound from the previous year’s woes but, nevertheless, the decade drew to a close with the longest equity bull market in history still intact.
As they had been for much of the decade, US equities were in the vanguard of performance, posting a return of 31% and ending
2019 with share prices trading at an all-time high.
The health of the US economy, a volte face in monetary policy on the
part of the Federal Reserve which began reducing interest rates once again, and the continuing march of technology stocks were the drivers of Wall Street gains.
Equity markets in Europe also performed well, despite mediocre growth in the region as the US-China trade spat undermined economic activity in Germany. As a block, the continent returned 28% for equity investors.
In the UK, markets breathed a sigh of relief following the outcome of the general election as there was renewed hope that the Brexit
logjam would be broken. UK equities have been avoided by international
investors since the EU referendum, but there is evidence this group is now feeling encouraged to return. Fuelled by this hope, UK stocks enjoyed a year-end rally to post a return of 19%.
The slowdown in global trade, together with the persistent strength of the US dollar, which made servicing and refinancing dollar-denominated debt more expensive, were major influences on the relative performance of emerging markets last year, checking returns for investors,
albeit to a still healthy 19% Japanese equities recorded a similar return of 18%.
Global economic growth slowed but is now showing signs of stabilising, and investors will be looking to the monetary authorities for continued support to prolong the economic cycle.
Events in the Middle East together with the knowledge that 2020 will close out with the US presidential election, are reminders of the impact that politics may have on markets. For equity investors, shares prices will need the support of a pick-up in corporate earnings to justify the lofty valuations created by last year’s gains. On balance, it is expected that positive returns can be made during 2020, although these are likely to be more limited than was the case last year.
JonDunn.
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