Market update - December 2019

Despite the geopolitical turmoil that marked most of 2019, share market rally continued up to the end of the year with global developed and emerging markets returning 2.3% and 3.5% respectively for the month of December.  Phase One Trade Deal between the US and China was announced in mid-December, providing a renewed boost for markets, although many of the more controversial issues were left for future talks.  Emerging markets benefited from the easing trade tensions, posting strong gains in December, particularly China, South Korea and Taiwan.  Markets also took confidence from the UK election as the Conservative Party retained power with a large majority.

Positive economic data and monetary policy also provided support to the market rally. In the US, jobs data remained strong. Unemployment fell to 3.5%, the lowest figure since 1969. In Europe, Christine Lagarde, the new European Central Bank (ECB) President, signaled that monetary policy would remain “highly accommodative” for a “prolonged” period of time.

The Reserve Bank of Australia (RBA) left the cash rate unchanged at its December board meeting, noting the “easing of monetary policy” over 2019 in its accompanying statement.  The Mid-Year Economic and Fiscal Outlook 2019-20 (MYEFO) confirmed the Federal Budget “remains on track to return to surplus in 2019-20”.  Treasury downgraded its outlook for the underlying cash balance by a cumulative A$22bn from 2019/20 out to 2022/23, or by 0.2% of GDP per year on average.

The investment returns of the major markets for one and three months, financial year, and one year to 31 December are summarised below.

Market Performance - 31 December 2019

Month

Quarter

FYTD

1YR

Australian Equities

-2.0%

0.7%

3.3%

23.8%

Overseas Equities (Hedged into AUD)

2.3%

7.6%

9.2%

27.6%

Overseas Equities (Unhedged into AUD)

-0.8%

4.4%

9.4%

28.7%

Emerging Markets (Unhedged into AUD)

3.5%

7.4%

7.1%

19.1%

Australian Property (Unlisted)

0.5%

1.5%

2.8%

5.7%

Australian Property (Listed)

-4.2%

-0.7%

0.4%

19.6%

Global Listed Property (Hedged into AUD)

-0.1%

0.8%

6.8%

22.3%

Australian Bonds

-1.6%

-1.3%

0.6%

7.3%

Overseas Bonds (Hedged into AUD)

-0.3%

-0.8%

1.6%

7.2%

Cash

0.1%

0.2%

0.5%

1.5%

Australian Dollar vs. US Dollar

3.9%

4.2%

0.2%

-0.1%

Source – JANA, FactSet

 

The Australian equity market returned -2.0% in December, underperforming both global and emerging markets, which returned 2.3% and 3.5% respectively.  Two factors impeded the performance of the Australian market in December – a sharp increase in the Australian 10-year bond yield, and a strengthening of the AUD across most other currencies over the month. 

The MSCI World ex-Australia Index (hedged into AUD) rose 2.3% over the month. The US market outperformed the broader developed markets, supported by the positive development in the trade deal with China and the strength of its domestic economy. Supported by the trade deal and US dollar weakness, the broader Asian market delivered a strong return over the month of December. Emerging markets markedly outpaced developed markets, notably Argentina (+13.2%), Korea (+8.1%), and China (+7.9%) posted very strong gains.

The AUD ended the month higher against all the major developed market currencies, except for the New Zealand dollar (-1.1%).  

Australian bonds and Overseas bonds delivered negative returns over the month.