Global Market in Tumbles

Argentina MerVal (YTD): 0.8%

The Argentine MerVal had a positive but marginal performance in the year 2018 in contrast to the strong growth in 2017. Economic strains reflected a currency crisis that necessitated an International Monetary Fund (IMF) bailout. The Argentine Peso lost 18% of its value within 12 days in the month of May 2018. The country’s economy suffered a downturn like most other commodity-dependent nations as export prices fell steadily over the year. The fall in fiscal revenue in 2018 led to the Argentine government raising local interest rates and reducing money supply. Both actions resulted in a slowing of economic growth. The currency troubles pulled the Index down as the economy faltered.

Brazil Sao Paulo Bovespa (YTD): 15.0%

The Bovespa outperformed all Stock Indexes in Latin America in 2018 as the Brazilian economy showed resilience in the face of economic headwinds that had stalled growth of other economies in the region. The Index gain in 2018 was the third straight year of positive growth in the last 10 years despite the fact that foreign investors pulled out $2.8mln from the market in the year. The re-election of President Jair Bolsonaro in October was hailed by local investors but was treated with more circumspection by foreign portfolio managers.

Japan Nikkei Stock Average (YTD): -12.1%

Japanese Nikkei Average Stock Index closed the year negative as the Japanese economy sustained growth momentum. The pullback though surprising to some analysts, makes sense within the context of the United States of America’s determination to reduce its trade deficit with Japan and China. Uncertainty about the impact of American policy on the future of Japanese trade relations and the recent rise in the dollar against the yen on rising domestic American interest rates has left investors wary about the Japanese equities market.

France CAC 40 (YTD): -11.0%

The French economy has been under pressure in 2018 with the economy’s growth lagging that of the rest of Europe. The strengthening of the EU currency, the Euro, last year seems to have caused problems for French exports and slowed down domestic growth. French President, Emmanuel Macron’s, problems with raising domestic taxes and reducing governments large fiscal deficit seems to have taken a significant toll on the French macro-economy and its stock market as several weeks of persistent workers protests and strikes merely worsened investor’s perception.

US Dow Jones Global (YTD): -11.4%          

The American Dow Jones fell -11.4% at the end of 2018, reflecting increased concern about the United States of America’s (USA’s) trade relations with the rest of the world, despite its strong economic outlook for the domestic US economy.  The US economy saw unemployment rate in 2018 decline to 3.7%, inflation rate drop to 2.2% and economic growth rise to 3.4%. These factors alone should have reflected positively on the US Dow Jones (Global) but growing trade concerns seem to be a major dampening influence.

Singapore Strait Times (YTD): -9.8%

Similar to challenges of sister markets in Asia, the Strait Times may likely have to wait until the end of H1 2019 before it sees any major or sustained rise in value, as investors wait to see how the US and China trade conflict resolves itself. However, it will be recalled that mid-year 2018, the Strait got hammered after the government announced additional policy measures to cool off a worsening property bubble with real estate prices soaring beyond underlying net asset fair values. This was perhaps the single most significant influence on the Strait Times in 2018. As with other Asian markets, the outlook for the Straits in 2019 will depend heavily on global economy expansion.

China Dow Jones (YTD): -26.51%

The Dow Jones China Index closed 2018 at a significant low as trade conflict between China and the United States put both the Chinese economy and its stock market under persistent pressure. China’s longstanding trade surplus with the United States created a difference of opinion between both countries resulting in two trading partners introducing new countervailing trade tariffs that have restricted bilateral and multilateral trade. China Dow Jones in 2019 will depend on:

·         Resolution of bilateral conflict between China and the US

·         Reduction in China’s trade surplus with the US

·         A fall in Yuan/dollar exchange rate

·         A cooling of political tempers

Russia RTS (YTD): -7.11%

Russia’s RTS Index came crashing down in 2018 like other markets in the Far East. The Russian market suffered mainly as a result of the declining fortunes of the international oil market. With oil price uncertainty, most of Russia’s listed oil behemoths saw their prices take a knock as investors became wary of revenue declines as prices slumped. The principal outlook for the RTS Index in 2019 will depend on the following:

·         The direction of oil prices; likely to hover between $55 and $65 per barrel

·         Reduction of the country’s fiscal deficit; a surplus, the first since 2011 likely

·         Private consumption spending; likely to rise

·         Fortunes of commodity markets in general in 2019