US stocks are wrapping up one of their best years on record in 2019, rounding out a decade-long rally that began in the embers of the financial crisis, writes Richard Henderson.
With markets close to flat in New Year’s Eve trading, the S&P 500 index of US blue-chips has gained 28 per cent, its best year since 2013, beating the FTSE All-World index, which is up 24 per cent in 2019, its best run since 2009.
Top picks in the US over the decade include Netflix, whose shares rose 4,000 per cent, and Apple, up 868 per cent.
“The dominant force over the past decade has been monetary policy,” said Kristina Hooper, chief global market strategist for Invesco. But investors are worried the rally has become overly reliant on easy money. “This is a bull market that is unloved because it has been driven by low interest rates — investors are sceptical.”
US stocks have gained 188 per cent over the decade, a bounceback from the 2000s, when they lost a fifth of their value in a period that began with the dotcom crash. The worst-performing developed country equity market over the decade was Portugal, which has shed 38 per cent of its value.
Top major currency this year: the Canadian dollar
The Canadian dollar has ended 2019 as the best performing major currency this year against the US dollar, with a total return of nearly 6 per cent, once interest rates are taken into account, writes Eva Szalay. The country’s central bank has been one of the few policymakers to avoid cutting rates this year, against a backdrop of other banks easing policy. At 1.75 per cent, the Bank of Canada’s key interest rate far outstrips other big economies, making the currency a standout for investors.
Exchange rate moves in the Canadian dollar are also heavily correlated with oil prices, which have rallied over the past few months. This rebound translated into strength in the currency, said Jonas Goltermann, a senior markets economist at research firm Capital Economics.
Mr Golterman said in a December note that while the BoC had been relatively hawkish compared with other big peers, he did not see much room for rate rises next year even if oil prices continued to climb — as global growth remained weak. But if other major central banks continued to ease next year, just staying on hold should benefit the Canadian dollar. “This suggests to us that it will outperform, even though we don’t anticipate a major surge,” said Mr Golterman.
Making New Zealand great again
The New Zealand dollar has notched up nearly 21 per cent of gains against its US counterpart over the past 10 years, when interest rates are factored in, write Eva Szalay and Richard Henderson.
Solid economic growth has allowed the country’s central bank to avoid cutting interest rates into negative territory, even if the current 1 per cent benchmark rate — down from 3.5 per cent in 2015 — represents an all-time low.
Bipan Rai, head of currency strategy for North America at CIBC in Toronto, said the currency’s outperformance highlighted the key theme of the past decade, which was “central bank interference” in markets.
The abundance of liquidity from central banks in the form of bond-buying programmes has also allowed riskier assets such as the Kiwi dollar to outperform peers. “In a negative interest rate world, you see quite a bit more demand for risk assets,” said Mr Rai.
This has also fed into New Zealand’s stock market, which returned 31 per cent in 2019, capping a 257 per cent surge from the start of 2010. A 17,500 per cent return for shares in A2 Milk — a company that has transformed the nation’s rich dairy heritage into baby formula to meet demand from China’s emerging middle class — has helped drive the wider market over the decade. The country’s fourth-largest listed group, Fisher & Paykel Healthcare, which sells face masks for sleep apnoea, led the market this year.
The tiny New Zealand equity market is less than 1 per cent of the size of its US counterpart.
For those who fear fiat currencies . . .
Whether you love or hate cryptocurrencies, it is hard not to admire the drama they have delivered, writes Katie Martin. In 2019, the value of bitcoin is up almost 100 per cent year on year, but it has dropped 43 per cent since June.
Bitcoin started the decade with a value close to zero, so tallies for the past 10 years are tricky. But even over the past five years, it has been a wild ride. The price is up by about 2,500 per cent in total, but still down by 60 per cent from late 2018, at $7,225.
Debt markets: all about negative yields
European government bonds stole the show over the past decade, beating US Treasuries and Japanese sovereign debt when it comes to price appreciation — as central banks opened the monetary spigots and injected billions into the financial system to support their domestic economies, writes Colby Smith.
According to Bloomberg Barclays indices, eurozone government bonds have returned 52 per cent to investors since the last day of 2009, edging out US Treasuries for the top slot. Japanese government bonds returned 21.9 per cent.
In 2019, Europe fell narrowly behind the US, with 6.8 per cent returns compared with 7 per cent for American-issued debt. Japan returned 1.7 per cent for the year.
“The rally in European bonds is the biggest bubble in the history of financial markets,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
Investors’ voracious appetite for safe-haven assets drove a swath of European government bond yields below zero this year, meaning prices were so high that buyers accepted a loss if they held the bonds to maturity. In August, $17tn worth of debt was trading with a negative yield. But Mr Boockvar thinks negative yields could soon become a thing of the past.
“We are possibly looking at the end game of negative interest rate policy in Europe,” he said, noting that certain central banks like Sweden had begun to reverse course and consider life above zero again.