Comment on Q4 2019: Ending the year on a high note
In terms of returns, 2019 concluded as one of the best years of a decade-long bull market, as investors’ fears for recession were quietened by dovish central bank policies, and trade tensions diminished. In our markets, emerging and frontier equities delivered strong results, up 19% and 18% respectively, albeit behind developed market equities’ 28% gains.
Beyond global indices, it is interesting to highlight that topping the charts globally, three of East Capital’s favourite markets, namely Russia, Greece and Romania, delivered impressive gains, up 56%, 50% and 40%, while China A-shares, up 37.5%, was the best market in Asia.
It was also a market where stock pickers like us thrive and most of our strategies did very well, both in terms of relative and absolute gains. We are particularly proud of Global Frontier Markets, ranking number one among its peers for 2019 and China A-Shares, which for the fifth year in a row delivered positive relative return over the benchmark.
The last quarter of the year showed a renewed interest for emerging and frontier markets, with strong gains. The MSCI Emerging Market index delivered its third-best quarter of the decade, with a 12.1% surge, and of that, 7.3% came in December alone. Even if Sino-US trade developments yet again dominated investor sentiment during the quarter, for us it was Russia that was particularly in focus, as the investment case continues to be extremely attractive, even after having been the best market in the world last year. Sanctions fears are fading, the macro backdrop is solid thanks to twin surpluses and specific corporate governance turnaround, and the potential for local equity inflows all play a part in this bullish outlook, which I experienced first-hand during my recent trips to Moscow. The latest change in government has just been announced, but so far bodes well for continuing reforms and for maintaining a solid macro.
A new year is often seen as an opportunity to get new perspectives. As long-term investors however, we tend to stick to our views, while market developments and our company visits can and shall always challenge these views, regardless of the month of the year. This year, as we start a new decade, I should however stress the fact that the recently signed US-China Phase One trade deal, which outlines many pragmatic actions, does clear the sky of the clouds that were constantly darkening emerging markets during 2019. As you can read in our outlook article “What’s in store for emerging and frontier markets in 2020?,” even if the growth outlook is somewhat soft, recession risks are low and have stabilised, while monetary policies remain supportive.
We look forward to another year of hard work on the ground, looking for good investments for our portfolios and engaging with companies on a variety of important topics, while we expect the environmental impact to become increasingly important in these conversations.
