What moved the markets in 2018 and what can we expect from 2019? (Video)

From Brexit to Bitcoin, 2018 was a challenging year for investors, and 2019 is already looking like it might be another turbulent year for the markets.

We sat down with Canstar’s Josh Callaghan to find out what he thinks moved the markets in 2018, and what we might see happen in 2019.

Watch our full interview here, or read the transcript below.

As an investor, how would you characterise 2018?

2018 was a pretty challenging year for investors and the market was certainly up and down quite a bit. Just to put that into perspective, in 2017 the ASX 200 traded for most of the year within a band of around 200 points. In 2018 we saw that spread out to almost 1000 points from the high to the low in the year. That makes for quite a choppy year for investors, which is challenging.

I think what led to a fair bit of that was just uncertainty. We had obviously a lot of uncertainty around Brexit and what that means globally and how that affects growth. We also had a bit of uncertainty around the trade wars, such as how much that escalated, what that would look like and how that would impact growth. We’ve already seen that it has impacted China’s growth, so that’s really interesting.

I think also locally we’ve had the Royal Commission and a couple of other things happen that have probably made it difficult for investors to clearly see the value of companies or the future of companies or the future of the economy as a whole.

The ASX 200 finished down 6.9% for the year. In the US market, the S&P 500 was down 6.5%, so they finished about lime ball with each other, which actually fared quite well globally when you look at say the FTSE over in the UK, which was down over 10%, as was the German DAX, the Hang Seng, and the Japanese market. So we’ve fared relatively well. We’ve outperformed at -6.9%, but it has definitely been a tough year for investors.

What are the major events that shaped 2018 for Investors?

There were a few major events that really shaped markets this year. One of the biggest was obviously the US-China trade wars – both the rhetoric and the eventuating tariffs that were put on goods both from the US side and the China side. This required a lot of investors to rethink how they say growth playing out between those two superpowers who really control a lot of the demand, supply and a lot of the flow of funds around the global economy, and things were priced as a result of that.

Brexit, while not a major event yet, was certainly a major political and environmental aspect that overshadowed the market for a lot of the year. Factors like how Brexit would look, where the Brexit would happen and so on certainly meant that investors weren’t able to step out with confidence with their investment decisions.

One of the forgotten events of 2018 was probably the Bitcoin crash that we saw in January. We saw the price of Bitcoin reach around AU$20,000 per coin as it had a really strong rally towards the end of 2017, and we saw that reflecting sentiment in the market as well, with the ASX having a strong rally at the end of 2017.

The subsequent crash of Bitcoin probably started to unravel some of that confidence around investing and around the market, and I think we saw that carry on throughout the year where a number of fingers had been burnt quite significantly by jumping in late on the cryptocurrency boom. As a result, that probably carried through 2018 a fair bit.

Locally, we obviously had a couple of big commissions – the Productivity Commission and the Royal Commission – and we had ASIC and APRA trying to control our lending and some of the requirements around that on our big banks. So as a result, the big banks, which do form a large part of the ASX 200 as far as a proportion of the weight of that index, did weigh down the ASX 200 index a little bit. Their margins have tightened generally speaking, and certainly, their competitiveness in the market has been under pressure. So naturally, that has put a weight on the ASX 200 in terms of how far it can go.

What’s in store for 2019?

2019 will probably be another challenging year for investors. I think one of the big global themes obviously will be Brexit still, but outside of that, we’ve also seen a couple of other things start to heat up this year such as the yield curve.

The yield curve in the US has started to flatten, and what that basically means when we talk about the yield curve is the difference between what someone gets for a 10-year bond versus what someone might get for a 2-year bond, and as that gets closer then it means that the yield curve is starting to flatten.

A flattening yield curve in itself probably doesn’t mean too much and economists will certainly debate that to no end, and we’ll see a lot of that coming out this year. When the yield curve does invert though – when the longer term yields go below the short term yields – that does tend to precede a recession, certainly historically that’s been the case, so it will be something that people will start talking about a lot more.

The Chinese growth rate will be another major factor, so their economy has started to slow down. As such a massive demand base in the global economy that’s something that’s definitely worth keeping an eye on and we’ll see what happens with that.

I think locally we’ve got a few challenges, certainly from a property market perspective, the property market finished down around 5% last year, driven by Sydney and Melbourne largely. With the property market decline coupled with the increased cost of funds to some of the banks, coupled with some of the regulation changes we’re seeing, a potential change of government as well as a number of other factors, means that our economy could start to slow, or certain parts of our economy could slow in this year, so we just have to keep an eye on what happens there.

I think from an RBA perspective, I certainly personally don’t expect any increases in the RBA rate but that may happen depending on what pops out as far as how our economy starts to grow and change, but the Federal Reserve is probably likely to continue their increases and I think that will start to change the dynamics as far as the demand for Australian assets, the investment in Australian businesses, the flow of credit and funds here which might also contribute to slowing down some of our economy.

So, there’s lots of factors this year. If I think back to 2018, a lot of our market moves certainly our big market moves were driven by international events. I think there’s probably not enough happening locally for that to change, which means really I guess investors need to be looking at what’s happening globally, what’s happening in the US in particular, what’s happening in China, what’s happening with some of our big trade partners, and just go back to the fundamentals.

There’s still great value out there in the market, there are still companies that are fantastic profit centres that have good growth prospects. So if investors do their due diligence like they always should, and obviously subscribe to and follow people like us at Investor Hub, there should be some opportunities out there to get their money working for them.

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Cover image source: Katjen (Shutterstock)

About Josh Callaghan
Canstar’s General Manager for Wealth, Josh Callaghan, has accumulated more than 15 years’ experience in banking and finance, with in-depth product knowledge across retail banking, stockbroking, life insurance, health insurance and superannuation. Josh’s experience combined with his passion for new technology and active role in the fintech community has positioned him as a credible thought-leader on the future of finance. Through his work at Canstar, Josh is striving towards a goal of creating a world where building and managing wealth is easy for all consumers.

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