Investment Markets Review: Winners & Losers

The last 12 months has seen one of those unusual periods where every major asset class gained in value.

The Emerging Markets sector, which includes investments in companies listed in places like India, China and Brazil, performed the best, producing an impressive return of 35.5% for the year.

Worst performing, predictably, was cash at just 0.8%, as central banks continued to supress interest rates across most developed economies.

Looking back, the various runaway investment markets offer stark contrast to 2008, when just three asset classes were in the black.  That year only Government Bonds, Gold and Cash moved forwards.  Interestingly, performing worst was Emerging Markets, falling back a massive 53% as investors cowered from riskier markets repatriating their funds to safer havens.

The MSCI EAFE index, which tracks stock market performance of the worlds most developed economies excluding North America, was second highest in 2017, producing an investment return of 25%.  America’s primary stock index, the S&P 500, was next with 23%.

Looking at individual top performers, it’s hard to ignore Bitcoin.   After rising from around $1,000 at the beginning of 2017, to reaching a peak of around $18,000 in December, before falling back to below $8,000 at the time of writing, it’s been a high-octane journey!  It’s difficult to see prices stabilising any time soon and many, including myself, predict that Bitcoin is likely to crash a lot further.

 

 

Bitcoin 12 Month Performance to 5th February 2018

Of course, we’ve also seen the catastrophic collapse of Carillion Plc.  With the share price falling from £1.90 on the 7th July 2017, to 56p 5 days later, it’s more than bizarre that this early market warning wasn’t mainstream news before it’s January 18 bankruptcy.  The enquiry will run long!

 

Carillion 12-month performance to 15th January 2018

On the upside, with so many companies producing a positive return over the last 12 months, more than 70 of the FTSE 100 moved forward over the year, there’s so many success stories to choose from.

Interestingly, Housebuilders fared particularly well.  Persimmon, Berkeley and Barratt all had an exceptional 12 months, up 55%, 53% and 44% respectively, capping an impressive year following a number of government incentives like Help to Buy buoying the sector.

Across the pond, the best performing stock on the S&P 500 was NRG Energy which was up a more than impressive 128% over the year as it announced plans to restructure its business, cut costs and divest of its renewable energy assets.

Can this momentum continue

So, can equity markets keep moving forward?  In January 2018 most markets showed some level of retreat as investors locked in gains.  However, many are predicting another strong year for the global economy and the worlds equity markets.  Ethan Harris, head of Global Economics at Bank of America Merrill Lynch has predicted another strong year for global economic growth and has issued warnings that the US economy could show signs of overheating as they reach full employment.  Worryingly for equity investors, this may trigger the Fed into raising interest rates faster than the markets expect.  Meanwhile, A J Bell Investment Director, Russ Mould predicts the FTSE 100 could exceed a record busting 8,000 points before the year is out.

With not too much on the political agenda for 2018, other than Presidential elections in Russia, market momentum is likely to be dictated by the threat of higher inflation.

Ultimately, we should take all predictions with a grain of salt.  At the beginning of 2017 some 12 major US investment banks polled by Fortune predicted an unstable year due Trump’s actions and that the S&P 500 would finish the year between 2,200 and 2,500.  It ended significantly above this at 2,700 with very little volatility.