Why Most Stocks Around the World Took a Lost in 2018?

Global stock markets closed out their worst year since the financial crisis, leaving investors bruised and braced for further volatility in the coming months.

The equity market retreat of the past year has been stoked by concerns of a slowing global economy and tightening monetary policy. Mounting geopolitical tensions, from the escalating trade war between the US and China to Brexit, have also rattled investors and weighed heavily on equities.

“The mood for the end of year . . . is one of uncertainty,” said Tom Digenan, head US intrinsic value equities at UBS Asset Management. “I do not think the mood changes until we get some good news, such as a signal that the Fed is going to maintain an accommodative policy or we get some positive news on the trade front.”

Sleepy trading conditions on the last day of the year on Monday delivered a small lift to some markets, with Wall Street making gains.

The S&P 500 rose 0.9 per cent to 2,506.85, after dipping into the red earlier in the session. The Dow Jones Industrial Average was 1.2 per cent higher and the Nasdaq Composite 0.8 per cent higher.

A weekend tweet by President Donald Trump, citing “big progress” in trade talks with President Xi Jinping of China after a phone call on Saturday was seen by some as a positive force in the year’s last trading day.

Gains in past few sessions cut the year to date loss for the S&P 500 to 6.2 per cent, but 2018 remained the worst year for US, London and European indices since 2008.

Line chart showing S&P 500 YTD

The widespread nervous sentiment has dragged the FTSE All World index down 11.5 per cent, also the worst annual performance since the financial crisis.

Although most markets in Asia were closed on Monday, and Hong Kong’s Hang Seng index was up 1.3 per cent, the region has had a torrid year, with China faring the worst.

China’s CSI 300 index has lost about a quarter of its value after plunging into bear market territory in the first half of 2018, as the trade tension with the US took root. The fall marks China as the worst-performing equity market of the year. The sell-off comes despite a landmark move to include mainland-listed stocks — called A-shares — into the flagship MSCI Emerging Markets index.

Uncertainty over Britain’s exit from the EU has cast a cloud over sterling and the UK’s stock market, with the FTSE 100 finishing the year down more than 12 per cent. Europe has not been immune to the weak sentiment, with the Euro Stoxx 50 index lower by 15 per cent.

Investors are bracing for headwinds in 2019 from geopolitical risks and tighter financial conditions as the US continues to raise rates and as Europe ends its post-crisis monetary stimulus.

“For the first time in many years, markets are now pricing in pessimism instead of optimism,” said Michael Cembalest, chairman of market and investment strategy at JPMorgan Asset Management.

Still, some investors said the year-end selling was overdone and predicted a return of risk appetite once the calendar year turned to 2019.

“It is like a sporting event: you are done with this game and on to another,” Mr Digenan of UBS said. “Right now, [risk appetite] is at such a low level — I think — irrationally low.”

The sell-off in Asia has been particularly pronounced, in part because of the strong US dollar that has drawn money out of riskier emerging markets, and as investors take profits from a stellar run in 2017.

Fund managers at Schroders said that although “a tumultuous 2018 has left Asian equities significantly cheaper and presenting selective opportunities”, investors must “tread carefully”.

“Asian equities in aggregate now trade close to the levels seen during the last period when regional markets experienced a downdraft in late 2015 and early 2016,” said Matthew Dobbs, an Asian equities fund manager at Schroders. “At this level, they are beginning to offer some value.”

Article source: https://www.ft.com/content/73d3dd26-0ce0-11e9-acdc-4d9976f1533b

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