WEEKLY E-MAIL

20 January 2020

CALENDAR YEAR 2019 INVESTMENT RETURNS IN REVIEW

By Paul Nicol

On just about every measure, 2019 did not turn out the way many had forecast with financial markets and geopolitics definitely confounding popular opinion.

At the start of 2019, the US-China trade war, the uncertainty of Brexit, slowing expectations for global growth and a multitude of geopolitical uncertainties led to a consensus of a cautious outlook. Here in Australia, a change of federal government looked almost certain causing further uncertainty for investment markets.

Understanding this backdrop, many professional forecasters a year ago were particularly conservative in their predictions for investment returns in 2019.

However, by the end of 2019 the US and China had reached a tentative trade consensus, the UK is set to leave the EU and here in Australia the Morrison-led Coalition defied every poll to secure another term removing any uncertainty around franking credit policy. In addition to this, domestic interest rates fell from already historical lows. These events propelled investments markets that produced exceptionally strong returns in 2019 as follows:

Incredibly, for Calendar Year 2019 the Australian share market, as represented by the S&P/ASX 200 returned a whopping 23.40%, the fourth highest calendar year return of the Australian share market in the last 20 years.

Growth sectors in the Australian share market outperformed in 2019 with the Healthcare sector retuning 44.9% and Information Technology retuning 37.4%, posting the highest total returns of the 12 General Industry Classification (GIC) sectors in 2019. Conversely, the big 4 banks were a drag on the ASX in 2019 with Financials returning 13.6%, the worst industry performer in Calendar Year 2019, The relative weakness of the banks was on the back of weak operating trends and governance issues.

Put all this into context, the return of the Australian share market in 2019 was phenomenal, not only posting the 4th highest return in the last 20 years, but the 15th highest return in last 100 Calendar Years as represented by the All Ordinaries index.

With the banks representing 23.5% of market capitalisation of the Australian market, the fall in bank stocks in late 2019 was a key reason why the ASX lagged Global equities. For Calendar Year 2019, Global shares yet again outperformed Australian Shares returning 27.86% in AUD. 2019 was the 5th Calendar Year in a row International Shares outperformed Australian Shares.

Looking into 2020, Global growth, which weakened during 2019, appears to be stabilising. Global inflation is likely to remain benign helped by the 2019 growth slowdown but oil prices are on the rise due to the current conflict between Iran and the U.S, which could have a negative impact on Global growth. Domestically, residential property prices have stabilised and we appear to have a stable political environment, but domestic growth is anaemic. In all likelihood, the RBA will drop interest rates further in an attempt to stimulate growth.

After exceptionally strong returns in 2019, valuations now look stretched. It would not be unreasonable to expect periods of sharp volatility in 2020 with returns likely to be far more subdued.

All the best for the year ahead.

Paul Nicol

Managing Partner
Senior Financial Planner
SMSF Specialist Advisor™
Barron’s Top Financial Adviser 2017, 2018 & 2019
Authorised Representative No. 230876

If you have any questions or comments, please email me at paul@gfmwealth.com.au

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