FTSE 100 ends year down 12.5%
Global stock markets have had a turbulent 12 months, as investor confidence has been buffeted by trade tensions, uncertainty about the direction of the world’s economies, fears of a global trade war and a ratcheting up of interest rates.
Over the year, UK stock market indices have lost considerable value, with the FTSE 100 down 12.5 per cent and mid-caps losing 15.6 per cent. Since their recent highs, they have dropped 15 per cent and 18 per cent respectively — if an index falls 20 per cent fall from a recent high it is regarded as being in a bear market. The last time the FTSE 100 closed down on the year was in 2015, when it fell 4.93 per cent.
The Dax index in Germany has lost 18 per cent of its value as Europe’s biggest economy has shown signs of a slowdown, and the CAC 40 in France is down 11 per cent, amid political and economic strains in the euro bloc. On Wall Street the Nasdaq is in a bear market, with the S&P 500 and the Dow Jones industrial index both down by around 15 per cent from their years highs; falls over the year are not as dramatic at 1.7 per cent, 7 per cent and 6.7 per cent respectively.
Japan’s Nikkei 225 Index ended the year with a loss of 12 per cent. Across the region, the worst performer of the year was the CSI300, the index of Chinese blue chips, which lost a quarter of its value. Hong Kong’s Hang Seng fell 13.6 per cent and Seoul’s Kospi lost 19.3 per cent over the year. The only major market in the black for the year was India, where the BSE index was ahead by almost 6 per cent.
Further end-of-year nerves showed up in the oil price, where a supply glut, trade tensions, weakening growth and surprise US sanction waivers for Iran’s biggest oil customers produced one of the steepest sell-offs in years. Having hit $86.74 a barrel in October, Brent crude ended the year at $53.80.
Nor did gold prove to be a safe haven. Although the last trading of 2018 saw it scale a six-month high, it suffered its first annual decline since 2015, down by almost 3 per cent at $1,281.95 an ounce.
Investor confidence in world economy at lowest since crash
Investors are more pessimistic about the world economy than they have been at any point since the 2008 financial crisis, according to a survey of leading money managers.
Concerns about a slowdown, compounded by fears of an escalation of the US-China trade war, have prompted them to move into defensive assets and dump shares, a report by Bank of America Merrill Lynch (BAML) said.
The S&P 500, the broadest measure of the health of corporate America, has had its worst December since the Great Depression. The S&P 500 is in “correction” territory, which is defined as a fall of more than 10 per cent from its last peak. The index fell 20 per cent in December 1931.
Observers expect a rocky start to 2019. Douglas McWilliams, deputy chairman of the Centre for Economics and Business Research, said he envisaged “stock markets continuing to be volatile” and “possibly weakening early in the year as growth data gets worse”.
Clients should remain invested for the long-term in a broad & diversified (geographically & spectrally) investment portfolio, whilst the Reeves' Investment Team maintains a risk-averse & cautious management strategy for the foreseeable future.
Barely a fifth of investments make a profit as market boom time ends
Just eight investment sectors delivered a positive return this year as markets were hit by a global sell-off, research has revealed.
The top performer among the Investment Association’s 37 categories was UK direct property, which grew 4.75%, followed by UK index-linked gilts, with a return of 3.25%. UK direct property covers funds that invest directly in commercial and residential real estate, as well as leisure and healthcare buildings and student accommodation.
The research, by the investment manager Tilney, shows the six other positive fund sectors in 2018 were: UK gilts; technology and telecommunications; global bonds; money market; short-term money market; and property (other), which covers specialist real-estate investments and securities.
The biggest faller was European smaller companies, which finished the year down 14.42%.
Lindsell Train Funds
It has been a stellar year for this fund’s manager, Nick Train, whose “buy and hold” approach has shone in recent months. Train likes big consumer brands and particularly drinks groups, because they have loyal customers who continue to buy the products regardless of the economic climate.
The fund has excelled by avoiding “Faang” stocks (Facebook, Amazon, Apple, Netflix and Google), which have been the favourites of other fund managers this year. He could be particularly well placed if the tech sell-off, which started in October, continues.
Darius McDermott, managing director of Chelsea Financial Services, said: “There is no reason the fund can’t continue to do well.”
We originally chose the Lindsell Train Investment Trust plc for our clients, but had to look at alternative (open-ended) Lindsell Train funds, due to trading liquidity issues which adversely affects dealing prices for large trade volumes.
The Lindsell Train Global Equity Fund as a close match to the Lindsell Train Investment Trust Plc, as opposed to the more narrowly focused Lindsell Train UK equity fund. Both are OEICs, which removes the liquidity issue and avoids the huge market price reached by the closed-ended investment trust.
The Lindsell Train Global Equity Fund is up 11% this year, while the average global fund is down 3.4%.
China is 'set to overtake the US economy in 14 years'
China is on track to become the world’s largest economy by 2032 as the United States faces a “serious budget deficit problem”, research suggests.
President Trump’s trade war with Beijing is stalling Chinese growth, however, pushing back by two years the moment at which it is expected to claim top position.
Analysts at the Centre for Economics and Business Research, an independent consultancy, says that China “finally seemed to be making progress in weening its economy off the large volumes of debt that had been used to prop up growth after the financial crisis”.
A calm start to 2019
Leading shares began the new year the same way that they ended the old, but they crept into the black in the final few minutes of trading. Though depressed by concerns about international trade tensions and the added pressure of disappointing manufacturing figures from China, the FTSE 100 ended 6.10 points up at 6,734.23, a gain of 0.09 per cent on the first trading day of 2019. The less internationally exposed FTSE 250 ended 84.65 points up at 17,586.70, a rise on the first trading day of 2019 of 0.48 per cent.
We start the year where we left off in 2018 - with angst over US Fed rates rises, Trump trade wars and a potential no-deal Brexit. Not to mention the halt to central banks’ expanding balance sheets, or the bombed-out oil price. It was therefore pleasing to see a marginally positive, if somewhat subdued, start to the New Year.
The information in this blog or any response to comments should not be regarded as final advice. Please remember that the value of your investment can go down as well as up, and may be worth less than you paid in. Information is based on our understanding at January 2019.