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| Source: Times.com |
An uneventful 2019 ended with a bang as the US Stock Market ended with a high, overturning the prediction at the the start of the year that 2019 will be gloom and doom given that we started the year with a trade war, an inverted yield curve and a slowing global economy. Aggressive policies from US and China to combat the troubles of 2019 managed stabilize the economy, bringing much confidence back to the markets. The closely watched inverted yield curve straighten back to its normal state, helping to convince investors that the worse is over and piled back into stocks.
The best 2019 performers in the developing world belongs to Russia and Brazil with both markets returning 28%. On the Asian front, East Asia and South East Asia generally ended the year with a decent return with most of the gains coming at the end of the year as hopes of a ceasefire in the trade war raised hopes that the pain from the on-going trade war will subside and help the East Asian economies back onto their feet. With most of the existing trade war tariffs still in place, it remains to be seen if the Chinese economy will still be adversely affected but as investor's expectation goes, we are going into 2020 with a more positive environment than 2019. Than again, given that Trump is as unpredictable as the weather, things may turn for the worse at the blink of an eye and things can get very ugly quickly from there.
On the European front, the European stock market did well base on the fact that it is churning along as usual, while China and US hurls economic missiles at each other. Investors have already factored in the impact a Brexit will have on the European economy and shrugged off the chaotic repeated postponement of the Brexit process in UK. That is until Theresa May quit her job as the UK prime minister and Boris Johnson took over. Johnson's plan to strong arm the divided parliament to push ahead his Brexit plans failed and he called for a snap election to attempt to get a mandate for his Brexit policies. Johnson and the Conservative Party won an astounding victory giving them the largest parliamentary majority since 1987, and giving him the mandate to push for a finalized Brexit plan with an expected exit of the UK from the European Union in 31st Jan 2020. With Brexit almost certainly to happen, the next decade will be an important development for the EU as member states and investors will observe how the British will fare outside of the EU, which will undeniably have an impact on the future of the European Union project.
On the fixed income front, bonds have also performed well thanks to a loosening of US monetary policy to combat the effects of trade war. The long term government bonds did especially well, delivering a performance not seen since 2014. However, the performance of bonds started to lag at the end of the year, as investors started to ditch bonds in favor of stock, thanks to an improving geo-political and economical environment.
In the area of commodities, Gold performed well, returning around 16% thanks to the looser US policies and the uncertainty of the trade war. Meanwhile, oil prices remained flat throughout the year as the threat of trade war has capped the price of oil as investors are worried that the demand for oil will fall as the trade war puts a toll on amount of global trade. Oil is one of the most essential lubricant for trade as you need oil to power ships, planes and railways to move goods around the world and a world that's rolling back globalization is definitely not good for oil prices. Gold and Oil was given a shot in the arm in recent days as the killing of Iranian general Qassem Soleimani brought about a new wave of unrest and uncertainty in the Middle East.
Portfolio Performance and Outlook
The portfolio returned 18.73% for cash investment and 16.73% for CPF-OA/SRS investment. The portfolio managed most of the gains in the first half of the year when a more aggressive portfolio managed to claw back most of the losses it made back in 2018. As the prospect of a slowing economy gotten worse in the middle of the year with the resolution of the trade war nowhere in sight, the stock component of the portfolio was reduced in favor of longer term government bonds to take advantage of the falling interest rates. Given the fact that the trade war seems to be affecting Asia more than US, the Asian component of the stock portfolio was reduced instead of a proportionate regional decrease helped the portfolio maintain its returns as the US stock market rallied strongly into the end of the year.
As for the outlook for 2020, things are looking optimistic, as how things are looking gloomy at the start of 2019. One thing I have learnt of the Trump administration, is to take nothing for granted and assume that things will always turn 180 degrees at the blink of an eye. Given that 2020 will be when the US presidential election will be taking place, the performance of the stock market will be greatly influenced by whether Trump winning the US presidency re-election or not. As of now, most of the presidential hopeful from the Democratic Party seems to be keen on taxing the rich and rolling back some of the more capitalistic reforms put in place by Trump... and the stock market probably will not react well should the Democratic Party wins the US Presidential Elections. Given that Trump is a deeply polarizing president, it will be difficult to tell where the votes will swing at this point of time, while there is still no one clear winner in the Democratic Party race of selecting a presidential nominee.
I will probably maintain a 50/50 allocation in the portfolio for the first half of the year and continue to watch for signs of recession as the global economy slows and probably will stabilize at the start of 2020. While hopeful that the global economy will do well in 2020, I am always reminded of the fact that this economy cycle is due for a recession and things may deteriorate at a blink of an eye, as corporate debt levels, especially in the Asian part of the world, continues to build up. The China economy will no doubt be the one economy we need to watch out for, for an answer to the health of the Singapore economy and the stock market for 2020.
I wish every one a Happy New Year and a Prosperous 2020.
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