Fourth Quarter 2019 Review & Outlook

Executive Summary

Following a great 2019, it is important to keep healthy expectations. 2020 might not start as strong as 2019 but it doesn’t surprise us that 2020 started slowly as the America’s presidential election is causing political uncertainty. Markets could very well react in the same way as the UK, where returns improved in December as the general election result eased political uncertainty. UK firms can finally stop trying to navigate shifting Brexit deadlines and start launching longer-term endeavours.

Inflation is keeping long-term interest rates low. So, although we don’t expect economic growth to surge, the outlook looks quite positive. 2020 look likely to be good for markets. Although returns may not rival 2019’s, we still expect shares to rise.

2020 Outlook

2020 is the fourth year of President Trump’s term – generally good for US shares, which will benefit. global markets, as the US, European and Asian markets are highly connected
Tech and Tech-like shares continue to be strong.
Investor confidence improved in 2019 as many overcome inaccurate fears. Investors gradually learned: the “trade war” lacked bite; recession never materialised; global manufacturing’s unease didn’t fell Germany and Europe; and Brexit deadline disruptions didn’t cause a UK recession.
The market climbed to a series of record highs through mid-January with some wondering if equities have risen “too far, too fast”. We don’t think so but beware of a market correction. There has not been one for some time.
As for the December election’s impact on the UK market, it does help reduce Brexit uncertainty, a positive, in our view. UK businesses have spent much of their energy navigating last year’s shifting Brexit deadlines, preventing long-term investments. Some uncertainty will likely linger as Johnson and EU officials negotiate a trade deal, but even just knowing we have left the EU should help businesses and investors move on.
The UK and EU must complete a trade deal by December 2020 when the transition period preserving tariff-free trade between the two is set to expire. That said, completing Brexit is a step forward giving businesses more clarity, regardless of whether the outcome is ideal. Given this, we think a Brexit-driven recession remains unlikely this year.
China’s slowdown continues to spark fears. Headlines say manufacturing weakness means tariffs are biting. This isn’t new when it comes to China, we think these fears remain false, mistaking the government’s efforts to shift from manufacturing to services as trade-war fallout. The latest coronavirus does add uncertainty to the situation, with China’s economy effectively being shut down but this shows signs of being controlled soon. We continue to monitor this.
Europe appears to have had yet another year of economic growth. This comes despite widespread fears over manufacturing weakness, which many presumed would infect the services sector and drive recession. German GDP improved in Q3. Many feared floundering manufacturing would drag the Eurozone’s largest economy into a recession, but in the end, services and consumption ensured this did not happen.