Global markets rallied into year-end to give the MSCI World Index its best year of the decade (+27.7%), leading the MSCI Emerging Market (EM) Index (+18.4%) by almost 10% for the year despite a much stronger December for EMs (7.5% vs 3.0% for developed markets [DMs]). This, as China and the US agreed to a “phase 1” trade deal in time to avoid the US going ahead with a scheduled implementation of 15% tariffs on $160bn of Chinese imports. Despite the relatively poor performance by EM stocks in 2019, the MSCI Russia Index was the best-performing major stock market in 2019, up 53% in US dollar terms. The MSCI Russia is a heavily concentrated index with its three largest stocks accounting for nearly 50% of the index and one of these, state oil company Gazprom, was up over 100%, helped by an aggressive change in dividend policy. December also brought the prospect of some clarity to the UK’s plans for exiting the European Union (EU) as UK voters delivered a strong mandate to Prime Minister Boris Johnson to proceed with his proposal of exiting by the end of January 2020. Johnson’s Labour government saw its representation in Parliament lifted from 46% to 56% as a result of the December election, giving them the comfortable majority needed to execute Brexit. Brexit clarity helped the British pound continue a rally which saw it rise over 10% since its August lows when the UK faced a real possibility of leaving the EU without a deal.
The US stock market ended 2019 32% higher, with Apple shares leading the way, up 10% in December, to leave the Apple share price 89% higher for the year. Energy stocks were the best-performing sector in December (+6% MoM) as Brent crude oil rallied 6% after OPEC+ announced better than expected supply cuts at its 2-day conference in Vienna and a plan to force better compliance to the production limits. Despite the December rally, energy stocks were still the worst-performing sector for 2019, up 12% as all the other S&P 500 sectors rose over 20% and IT led the way, up 50%, helped by Apple, Microsoft, Mastercard and the semiconductor stocks, which were all over 50% higher in 2019.
Yields sold off amidst strong risk appetite and US 10-year government bond yields climbed to 1.9% (down from 2.7% at the start of the year). The US dollar weakened in December with the Dollar Index ending the year roughly flat. EM currencies were among the best performing in December, with the Brazilian real, Russian ruble and South African rand all up over 4% for the month. The rand rally left the currency 2.6% stronger against the US dollar for 2019.