NCM2020 (3) - General Improvement In Global Stock Markets Amid Economic Headwinds

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Thursday, January 23, 2020 / 06:00 AM / By Proshare Research/ Header Image Credit: EcoGraphics

 

There was a general improvement in the global stock markets amidst various economic headwinds such as the trade tensions between US and China, BREXIT uncertainty, slow-down in automobile industry, global slowdown in economic growth,  geopolitical tensions in the middle-east etc.

 

There is a positive outlook in the global stock market as it is hoped that US and China will finalize a trade deal that will ease trade tensions globally, BREXIT will be finalized and global growth will pick up.

 

Italy (S&P/MIB Index) +44.07%

Despite slow growth in the Italian economy, the Italian stock market witnessed a significant improvement in its activities. The highlights of activities in the Italian economy are as follows:

  • Recovery is now slowing, after having been weaker than in other countries, and real GDP per capita is still below its pre-crisis peak.
  • Exports and private consumption growth have weakened. Waning external demand and uncertainties about global trade arrangements have hurt exports. Analysis suggests that since 2010 Italian exports have shifted to higher value-added sectors, less exposed to competition from low cost countries. Relative price- and cost-based indicators have varied little since 2011, suggesting that changes in prices and production costs have played only a minor role in the rise and fall of exports. Exports dropped in the first half of 2018 but recovered somewhat afterwards.
  • Low productivity growth and large social and regional disparities are long-standing challenges.
  • Social and economic wounds inflicted by the crisis have not yet healed.
  • Slowing job gains and lower real wages have moderated private consumption growth, and along with rising uncertainty, helped raise the household saving rate.

 

Argentina (MerVal) +37.60%

Argentine's stock market recorded a significant improvement in its stock market from last year. The stock market remained resilient amidst its various economic crisis. Some of the major highlights of the economy are:

  • The Argentine economy recently recorded an improvement in its economy by a growth rate of +0.9% in Q3 2019 from a contraction of -0.7%. While its inflation rate as at November was +51.4%.
  • Over many decades, the economy has been held back by weak policy settings. Productivity growth has been low, and even negative over the last 20 years. This explains why incomes have fallen behind those in Latin American and other countries over time.
  • The severe economic crisis that unfolded as of April 2018 and pushed the economy into a deep recession, however, has shifted the immediate policy focus to restoring confidence and unwinding significant fiscal and external imbalances. As confidence tumbled, the value of the currency halved while interest rates, unemployment and inflation soared.


Brazil (Bovespa) +32.59%

Brazil's bovespa recorded a significant growth in its activities. Despite its slow economic growth and the negative impact of trade war on the economy, there was still an improvement in its stock market activities.

  • Brazilian investors have kept faith in their financial markets this year while foreigners have steered clear, but if their confidence fades, so too might the nascent recovery in Latin America's largest economy.
  • The Brazilian economy grew to +0.6% in Q3 2019 despite staggering start to the year from a contraction of -0.1% in Q1 2019. Thus providing an evidence that the recovery is gaining some momentum, though growth remains soft.
  • The inflation rate rose to +3.27% in November from +2.54% in October. The services sector, which accounts for more than 70% of the Brazilian economy, expanded by 0.4%. Gross fixed capital formation (up 2%) and consumption by households (up 0.8%) stood out
  • On the flip side, government spending contracted for the second quarter in a row, shrinking by 0.4%, while net exports continued to be a drag on growth too, while exports falling 2.8% and imports rising 2.9%. 

 

US (Dow Jones) +22.80%

  • The U.S. economy proved remarkably resilient in 2019, defying recession fears that dominated the headlines throughout the year. The economy has entered the longest expansion in American history, surpassing the economic boom of the 1990s.
  • United States consumers, buoyed by the strong labour market, have continued to drive economic growth during the past year against a backdrop of weak business sentiment.
  • Increased hiring and rising wages have powered consumer spending, which accounts for more than two-thirds of the U.S. economy. The stock market also rose steadily throughout the year, boosting household income and allowing people to spend more.
  • The trade dispute with China hasn't affected consumer spending, either. Despite tariffs on Chinese imports, changes in retail prices kept pace with broader inflation, mainly due to China's devaluation of its currency, according to economists.
  • The United States economy grew at an annual rate of +2.1% in Q3 2019; growth for 2019 is predicted to be +2.3%, weaker than last year's +3%.
  • Despite the solid economic activity, downside risk from slowing global growth and trade tensions led the U.S. central bank to cut its benchmark federal funds rate three times in 2019
  • The strong United States economy has continued to attract investment in 2019 from all over the world because of the perceived safety of United States markets. As a result, the U.S. dollar has risen to a record high relative to emerging market currencies

 

China (SSE 180) +31.45%

Chinese stock market has remained unshaken despite the trade war between U.S and China. The stock market has experienced positive improvement.

  • Despite the trade war and other economic headwinds, China managed steady growth in 2019. While GDP growth fell to a low of in Q3, China is on pace to hit the lower end of its growth target of +6-6.5% for the year.
  • A closer look at sector-specific performance shows that the economy has shown signs of vulnerability in 2019. For example, profits in the manufacturing sector declined by 4.9%  from January to October, while profits for industrial firms fell by 2.9% in the same period. In October, auto sales declined for the 16th consecutive month as consumers held off on big-ticket purchases amid economic uncertainty.

  • The Chinese government in 2019 rolled out some new economic laws and reforms noticeable of which is the Foreign Investment Law, which introduces a new legal framework for managing FDI in China. The Foreign Investment Law streamlines disparate laws and regulations governing foreign investment and adds additional protections - including explicitly banning forced technology transfers.
  • 2019 may eventually be looked back upon as a turning point for many foreign governments and businesses in determining how they interact with China. In 2019, China's tensions increased not just with the US, but several other countries, including Australia, Canada, and some European states. Going into 2020, these geopolitical tensions show no signs of letting up, regardless of whether a US-China trade deal is finally signed.


France (CAC 40) +27.62%

  • Economic activity is likely sustaining a solid pace of expansion in the fourth quarter, following a resilient outturn in the third quarter.
  • Household spending appears to have remained the mainstay for growth as the unemployment rate fell in October and consumer confidence reached an over 12-year high in November. That said, country-wide strikes in December-in response to the recent pension reform plans-should restrain consumer spending somewhat.
  • Moreover, capital investment has likely cooled given easing business sentiment, particularly in the manufacturing sector, and exports-while seemingly broadly stable in Q4-may moderate ahead on the imposition of USD 2.4 bn worth of U.S. tariffs starting January 2020.
  • The government finally unveiled its long-promised pension reform on 11 December, which unifies the current 42 existing regimes into one point-based system. Although the overhaul keeps the retirement age at 62 years, public sector pensions will be calculated according to the less favorable rules of the private sector. Sliding transition rules plan to bring the scheme fully into effect by 2037.

Global Stock Markets 

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There was a general improvement in the global stock market when compared to that of last year. In the year under review, out of (34) stock markets reviewed (26) are in green which signifies an improvement, (5) stock markets did not record any change while (3) stock markets are in red which indicates losses.

 

The Italian index is currently top with 44.07% gain and followed by Argentina MerVal and   and the U.S Nasdaq with 37.60% and 35.74% gains respectively. On the other hand, the Malaysian KLSE, Chile's IPSA and Nigeria's All Share Index dipped by -3.47%, -6.41% and -15.95% respectively to the list of markets in red. The Nigerian Stock Market which is our primary monitoring market, the key benchmark index, NSE ASI, YTD currently stands at the worst performing stock market -15.95%.

 

Do feel free to share your opinions/observations and feedback with us vide content@proshareng.com and/or research@proshareng.com

 

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Proshare Nigeria Pvt. Ltd.

 

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