Climbing a wall of worry

It is often said that markets “climb a wall of worry” and this appears to be what has occurred in 2019 as markets have shrugged off extreme pessimism and surged to new record highs.  This has occurred on the back of the resolution of two big uncertainties that have weighed on markets all year.

The first arrived is clarity that Brexit will occur with Boris Johnson and the Tory party winning the Friday the 13th December election with a significant majority.  This clears the way for his Brexit agenda and addresses a significant “worry” in the market.  The FTSE is up over 3.5% in the days following the Tory election win.

The second, and remarkably also announced on Friday the 13th, was the US-China trade war has reached a shaky phase 1 agreement. At the time of writing this agreement has still not yet been signed by President Trump and the market retains some scepticism.  However, US markets have again hit record highs as a second “worry” is addressed.  Remember though, that a phase 1 trade deal, merely means that all the difficult items have been removed to be discussed later.  So, while this trade war will likely endure, the imminent December 15th tariffs threatened by President Trump have been suspended.

To put into perspective how well markets have done, 2019 year returns to the end of November for our Shariah-compliant asset classes remain incredibly strong; with Australian equities returning 26% and International equities returning 17% and Australian REITs returning 25%.

While 2019 was pre-occupied with the Brexit, the US-China trade war and the rising potential for a US recession; the outlook for 2020 appears much different with central banks around the world having already loosened monetary policy and early signs that the global growth downturn may be easing.

The paradox of investment markets is that the stronger today’s returns are, the lower tomorrow’s return expectations are. We must always keep this in mind as we continue to build prudent portfolios that well balanced in terms of risk and return.

Crescent Wealth is a pioneer in shariah-compliant investing in Australia. Our priority over the coming year is to continue to broaden the diversification and improve the risk-adjusted returns of our portfolios.  We continue to seek new out and encourage the development of new shariah-compliant asset classes for Australian investors.

 

Jason Hazell

Chief Investment Officer

Crescent Wealth

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