CIO Monthly View with Will Bartleet, CIO and multi-asset portfolio manager at Pacific Asset Management
Equity markets ended the year in a jubilant mood as the US and China agreed phase one of a trade deal, signalling the first de-escalation of a trade war that started almost two years ago. What started with tariffs on washing machines and solar panels ramped up with self-proclaimed “Tariff Man” Trump imposing $360 billion levies on Chinese goods.
The deal commits China to buying at least $40bn of US agricultural goods in exchange for which the US agreed not to proceed with the final round of tariffs on $156 billion of Chinese consumer goods that were due to take effect on 15th December and to a reduction in tariff rate on $120 billion of Chinese imports that were introduced in September.
In the UK, Boris Johnson’s Conservative Party won a decisive victory over the Labour party, providing the Prime Minister with a “huge great stonking mandate” to deliver Brexit. UK equities led the developed world higher in December as investors cheered the election result and the relative certainty that a Conservative majority brings. The Pound rallied in the lead up to the election, holding back the returns of the rest of the developed world when measured in Sterling.
Emerging market equities were the clear winner over the month as both their equities and currencies gained in response to the encouraging news on trade and improving economic data from China.
There was significant divergence within fixed income markets over the month, with Emerging Market bonds rallying whilst UK gilts fell as the risk of a stalemate in UK politics receded with the election result. Finally, within alternatives, after retracing some of its gains over the last few months, gold rallied in December, demonstrating its value as a genuine diversifier within the portfolio. As multi-asset investors with a long-term mindset, we continue to emphasise the importance of ensuring portfolios remain liquid and highly diversified in order to meet our objectives.
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