Markets around the globe experienced a surge in the fourth quarter. This move drove annual gains over 20% for the first time since 2017. Stocks were lifted by improving economic outlook, a potential resolution to the US/China trade war, and additional easing by central banks around the world. All major international markets posted a positive return in the quarter. With the rally this quarter global stock markets (excluding the US) are within one percent from seeing new all time highs. The US Dollar was weaker compared to a basket of global currencies in the quarter. This helped your portfolio’s performance.

Europe
The headline in Europe this quarter was a resolution to BREXIT appears close. The UK had an election in December which the conservative party won in a larger than expected victory. This should lead the UK to exit the European Union sometime in the first quarter of 2020. Things can always change, and the situation is always fluid, but there seem to be limited options other than moving forward with BREXIT.

European markets benefited from optimism that a detente in the US/China trade war appears likely in early 2020. Manufacturing represents a larger percentage of the economy than in Europe compared to the US and manufacturing has been disproportionately impacted by the trade war. Germany and Italy have almost 20% of their economies tied to manufacturing. A trade war truce has a larger impact on their economies because of this and China remains a large trading partner.

Earnings growth in 2020 is the key catalyst for European stocks. Expectations are for companies to see 10% earnings growth in the year ahead. Some of the performance this quarter can be attributed to investors updating their targets based on these strong expectations. Valuations remain interesting in Europe. The market is selling for 14.9x forward earnings which is roughly in line with the historical average of 14.3x. The European Central Bank is continuing to spend EUR 20 billion per month buying bonds to stimulate growth. This will support asset prices including stocks in the year ahead.

Japan
Japanese stocks kept pace with global markets despite some problems experienced in the quarter. The Japanese government implemented its 2% increase to its national sales tax. This caused a significant decline in retail spending in October as consumers either purchased in advance of the new tax or decided against purchasing large items. Japan was impacted by Typhoon Hagibis which was the largest and costliest typhoon on record. The outlook in Japan does look promising in 2020. The Tokyo Olympics should provide a catalyst as tourist spending will pick up. Earnings are expected to grow between 9% and 11% next year and the market looks reasonably priced at about 15x forward earnings.

Canada, Australia & Asia
Canada was the top performing market this year. Gains were made in the financial and energy sectors. Financials benefited from the Bank of Canada taking a more dovish policy stance and the bump in crude prices helped energy stocks. Australia saw a positive performance this quarter but was the weakest of the global markets. Historic wildfires in Australia have impacted all corners of the country and are expected to impact economic growth in 2020. Shares in Asia recovered this quarter as the prospects of a US/China trade deal helped lift estimates for the new year.

Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

Global Market Viewpoints: Q4 2019