Market update – the year in review

A surprising year for returns

Against a background of global geopolitical unrest, 2019 stunned many with strong investment returns across almost all asset classes.

Few people forecast the strong returns seen at the close of 2019. In Australia, the ASX 300 recorded its best year since 2009, up 18.8%, while in the US, the S&P 500 soared 28.9%. This surprised market commentators and was welcomed by superannuation members seeking retirement income.

Positive action reaped the rewards

Playing centre stage in markets’ outperformance were global central banks, which reacted to slowing global growth, stagnant inflation and US/China trade tension by making several rate cuts.

In Australia, interest rate policy came into sharp focus when the Reserve Bank of Australia (RBA) made three successive interest rate cuts to a new low of 0.75%. These cuts failed to reignite consumer confidence and had little impact on the RBA’s targeted inflation rate of 2-3%. However, the rate cuts, together with a convincing Coalition election win in May, which removed prospects of housing tax changes, saw Australian house prices recover strongly across all our major capital cities.

Global tensions with local implications

Over the six months to December 2019, the trade tensions between the US and China dominated global news headlines. When talk of a potential trade agreement finally eventuated in December, it sparked a bounce in equity markets.

In Europe, it was Brexit and the UK election which captured the most attention throughout the second half of the year. To the surprise of many weary observers, the ongoing uncertainty was partially resolved through the Conservative party’s re-election and overall house majority, paving the way for Prime Minister Boris Johnson to successfully complete Brexit in early 2020.

Markets searching for certainty

The coronavirus has recently triggered a shift in investor sentiment. Until mid-January, investors were extremely optimistic, with share markets reaching highs not seen for several years.

But the problem for global markets is that investors like certainty.

Reports about the coronavirus, and the World Health Organisation declaration of this being a public health emergency on 30 January 2020, sparked international concern and uncertainty.

What it means for you

Many people’s key financial assets such as their superannuation and their home are likely to have grown substantially over the last year.

At the start of 2020, many global economists predicted a positive year, driven by emerging market countries like Brazil, Russia, India and China (BRICs). But economists now suggest the coronavirus could reduce first quarter Chinese GDP growth by between 0.5% and 1%. If current events do slow China’s GDP growth, there’s a risk this will have follow-on effects for other countries. Markets currently expect this to be a temporary impact and central banks are looking through these short-term effects, but uncertainty remains.

Investment market performance from around the globe