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Equities surge in 2019

Will China and the US continue to lead the way in 2020?
January 16, 2020

I’m sure our readers know that catchy or screaming headlines aren’t necessarily accurate; they are designed to draw the audience in and sell content. At the start of a new calendar year, the noise is amplified by fund managers hawking their wares, luring investors with past-performance tables and suggestions of untold riches ahead. Sometimes they can be economical with the truth, but more usually choose their exhibits carefully.   

This January stockbrokers have had a field day using the very strong bullish rallies of 2019 as an example of what you might have made had you been invested. Today I’m looking at Chinese and US stock indices because their rallies have unfurled against a massive trade spat between the world’s two biggest economies. A truly outstanding feat.

Pole position goes to China’s ChiNext index, some call it their version of the Nasdaq. Listing of high-tech companies on Shenzhen’s Stock Exchange started in 2009 and currently trades in 464 different companies. As you might expect, the index can be volatile, but a 40 per cent gain last year is going some. The CSI300 index of the top 300 companies listed either in Shanghai or in Shenzhen came up snapping at the former’s heels, with a 38 per cent rally, a feat almost matched by Shenzhen’s A share index, which rose 37 per cent.

Over in the US, Wall Street managed some very hefty gains – much trumpeted by President Trump. Top dog was the old Dow Jones Industrial Average, which climbed 37 per cent since the first working day in January until close of business on 31 December. Next in line was the S&P 500, which rallied 29 per cent, followed by the Dow Jones Utilities Index at 25 per cent.

Now, if you recall, we started off at this time last year having lived through an appalling fourth quarter of 2018 for global indices. So, shifting to a start date of Monday 1 October 2018 for US indices and Monday the 8th for Chinese ones (they were on holiday), we’ll look how these indices did over the following 12 months. Over this period, the best performance was put in by Dow Utilities, which rose by 22 per cent. However, in second place was the S&P with a paltry 2 per cent gain and the tech-heavy Nasdaq managed an embarrassing rise of less than 1 per cent. What you see here is that it took 12 months to undo the fourth quarter's damage.

In China, ChiNext led the way, higher by 18 per cent, followed by Shenzhen A shares’ 16 per cent and then the CSI300 at 15 per cent. Not a bad show, but remember that the starting point’s low was first reached in Shenzhen in May 2007.

To give these indices a bit more time to recover, we measured their performance from October 2018 to December 2019. On these measures, China outperforms, our top three picks up between 24 and 28 per cent. In the US Dow Utilities sticks at 22 per cent, Nasdaq improves to 15 per cent and the S&P500 10 per cent – proving that meaningful gains were only achieved in the fourth quarter of 2019.

Start dates are key, ergo many UK fund managers’ examples start in Q4 1974 when the FT All-Share’s low was 66.70; today it’s trading at 4242.41.