The markets spared investors’ emotions in 2019 and closed out the year uneventfully. Widespread easing by central banks and the prospect of a trade deal between China and the United States enhanced their yearly performance. The December rebound in the oil price and interest rates that are more attractive than elsewhere in the world boosted the value of the loonie, whose strength detracted from a performance that generally exceeded expectations.
The year ended modestly at home. Changes in interest rates in Canada adversely affected the performance of bonds, and the spreads between Canadian bonds and those of other countries supported the loonie’s appreciation against many foreign currencies. The stock market remained in positive territory, but failed to match the returns on the world’s other stock exchanges, advancing only 0.2% in December, as measured by the MSCI Canada Index. From a sector standpoint, the performance was mixed: half of the sectors advanced strongly, especially energy and materials, but the others suffered the opposite fate. Consumer staples and consumer discretionary were among the sectors that had a difficult month.
With accommodative monetary conditions, as well as positive momentum stemming from a possible trade agreement with China, the U.S. stock market did not disappoint, advancing 2.9% in local currency, as measured by the MSCI USA Index. Even so, the significant appreciation of our currency against the greenback detracted from this result; expressed in Canadian dollars, the performance was 0.5% for the month. Most sectors contributed to the return, including energy, which benefited from a significant increase in the oil price.
Europe also performed well at year-end. As measured by the MSCI Europe Index, the European market returned 1.7% in local currencies. The fluctuation of the European currencies had little impact on performance, such that it was 1.5% in Canadian dollars. With the exception of communication services, all sectors made a positive contribution during the month.
Like the U.S. market, Asia benefited from the prospect of a resolution of the trade dispute. Expressed in local currencies, the benchmark MSCI Asia Pacific Index returned 3.1%. Only consumer staples and industrials subtracted value in December. Information technology and communication services led the gainers. The relative strength of the Canadian dollar against the basket of Asian currencies in the index partially reduced the return; expressed in Canadian dollars, it was 1.9% for the region.
Even though emerging markets tended to lag during the year, they ended 2019 strongly. Their return in local currencies, as measured by the MSCI Emerging Markets Index, was 5.6%. All sectors made a positive contribution, but for some the increase was substantial. For instance, information technology, materials and real estate had an exceptional month. Currency fluctuations had a slightly negative impact on the return; expressed in Canadian dollars, it was 4.8%.
Sources: Bank of Canada and MSCI Inc.
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