Commentary on financial markets – December 2019
Highlights:
- China and US agree on first phase of trade deal
- Conservatives win clear victory in UK general election
Commentary:
The whole of 2019 has been very positive for equity markets. As measured by the MSCI World Index, global equities have appreciated by +27.3%. Equities in 2019 benefited mainly from the shift in trade adjustment negotiations between the US and China, declines in US interest rates and thanks to the growth of the global economy. Just for the record, US equities as measured by the S&P 500 index have managed to appreciate by a staggering 190% over the past decade. However, bearing in mind that no tree grows to the sky, stocks and equity funds should still form the basis of long-term investor portfolios.
Just as it has been all year, December was a positive month in the stock markets. All major markets managed to rise except Australia, which is struggling with the largest wildfires in its history.
The most important December news is undoubtedly the agreement between China and the United States on the first phase of de-escalation of the trade conflict. Part of the deal is that the latest wave of planned tariffs will not come into effect at all. This was due to hit Chinese goods worth a total of USD 160 billion and was due to run from mid-December. On the other hand, however, none of the previously set and still in force tariffs will be lifted for the time being. The United States has only decided to reduce the tariffs from this September, which affect about USD 110 billion of Chinese exports, from 15% to 7.5%. In return, China has promised to increase the volume of US agricultural products it buys.
The Conservatives won a clear victory in the British general election, convincingly defeating the Labour Party led by Jeremy Corbyn. In the end, the Conservatives won 365 seats, a strong majority. Boris Johnson should therefore have no problem pushing through Brexit by the end of January. The likelihood of a no-deal Brexit is now almost zero, which is excellent news for British stocks. However, once the UK votes to leave the European Union, the British government has a tough task ahead of it, namely negotiating new trade deals with key partners.