Market tail risks reduced in December with an apparent trade truce between US-China and a Conservative general election victory. Risk assets ended the year in positive fashion as a result.
Sterling rose against the US Dollar (2.1%), Euro (1.1%) and Japanese Yen (1.9%) over the month, ending the year at 1.326 (£ to US$). Sterling was up against the Dollar by 3.6% over the year and by 11% from the lows in September 2019.
Longer dated UK government bond yields increased moderately over the month, steepening the yield curve as the Bank of England kept shorter rates on hold. The FTSE Actuaries UK Conventional Gilts All Stocks index lost 1.3% over the month, resulting in a loss of 3.9% over the final quarter of the year. In Europe, the German 10 year bond yield rose to a 7 month high over the month to -0.19% and the US 10 year government bond yield, rose 0.2% to 1.91% by month end. The FTSE (Non-GBP) World Government Bond index generated a 3.7% total return over 2019, in Sterling terms.
US equity markets continued to generate new highs, with the S&P 500 index breaking through 3,250 and gaining 3.0% over the month. In December the main US market was aided by two of the sectors that have been laggards over the previous year, Energy (6.0%) and Health Care (3.5%). The irrepressible Information Technology sector also rose by 4.5%. Equity markets were relatively cautious in Europe despite the positive news flow, with the MSCI Europe ex UK index generating a return of 1.3% over the month, supported by Spain and being held back by Germany. The 26.4% return over the year for MSCI Europe ex UK is the best annual performance since 2009.
In Asian and emerging markets, China, Taiwan, Korea and Brazil performed well over the month resulting in the MSCI AC Asia Pacific ex Japan index growing by 4.3% and MSCI Emerging Markets rising 5.7% in December. However MSCI Japan had relatively muted gains of 1.3% over the month.
Over the year, in sterling terms MSCI AC Asia Pacific ex Japan (14.6%), MSCI Emerging Markets (13.9%) and MSCI Japan (15%) have all underperformed the FTSE 100 (17.4%). During December the FTSE All Share returned 3.3%, driven by a rally in domestically focussed mid cap stocks. The FTSE 250 (excluding Investment Trusts) index rose 5.9% through the month, with the FTSE 100 gaining 2.8%. Over the year the FTSE 100 index rose 17.3%, compromising capital growth of 12.1% and dividends of 5.2%.
The Opec+ alliance agreed to production cuts at the start of December in a move seen to try and keep Oil prices buoyant. Coupled with the positive macro sentiment, Brent Crude rose 10.9% over the month resulting in a 16% gain in final quarter of 2019. The Gold price reversed is losses from November to gain 3.6% over the month, finishing the year at $1,517 (per oz).
Chief Investment Officer