In last Friday’s Wall Street meltdown, the Dow Jones dived 400 points in a day to round-off what has been a hugely disappointing 2018 for investors.
Almost $6 trillion (Dh22.04tn) has been wiped off the value of global stocks this year, intensifying fears that the decade-long bull market is finally coming to an end.
The decision by the US Federal Reserve chairman Jerome Powell to raise interest rates for the fourth time this year helped trigger the latest plunge, as did fresh concerns over the US-China trade war.
The S&P 500 index ended Friday down more than 2 per cent to cap its worst week for a decade.
A handful of asset classes have defied the downward shift in sentiment over the year, but you will have to look hard to find them.
Emerging and frontier markets have had a rough ride, falling around 18 per cent year-to-date according to MSCI. The Chinese Shanghai Composite is down 26 per cent, while South Africa lost around a third of its value and Turkey almost halved. However, the GCC has been relatively robust with the Abu Dhabi Securities Exchange up around 6 per cent and Saudi Arabia rising a similar amount despite the oil-price slump.
European markets fell around 13 per cent year-to-date, as did the Brexit-stricken UK index.
Vijay Valecha, chief market analyst at Century Financial Brokers in Dubai, says economic and geopolitical worries have taken centre stage. “Rising US interest rates, President Donald Trump's trade war with China, the dispute over Italy's budget and the lack of progress in Brexit directions have cast a shadow over sentiment.”
This volatility is a far cry from the smooth 2017, when the MSCI World index rose 25 per cent. The US was one of the few markets still in positive territory this year but that has now changed.
Mr Trump has added to the uncertainty, with reports suggesting he may fire Mr Powell, while the government is in partial lockdown after the Democrats refused his demand for $5bn to start building his Mexican border wall.
The S&P 500 fell 7 per cent last week alone and is currently down 9 per cent year-to-date, as is the Dow Jones.
However, Mr Valecha says with company earnings still growing, 2019 could be more positive than the doomsayers suspect, but only if the Fed goes easy on interest rate hikes. “This would help reverse recent losses and even fuel an emerging markets rally. India and China equities can be a good play for 2019, if you are feeling brave right now."
This year Apple became the world’s first $1tn-company in August, followed by Amazon in September.
Both were then pummelled by volatility in October and quickly lost their new status. Apple’s market cap plunged to $715bn by December 21, while Amazon's stood at $673bn.
Other US tech companies, Facebook, Netflix and Google-owner Alphabet are all down in value this year.
Russ Mould, investment director at British trading platform AJ Bell, says investors who still believe in the big US tech companies can invest in them through Invesco QQQ ETF, with Apple, Microsoft, Amazon, Alphabet and Facebook making up almost half the fund. “Be warned, stocks that go up like rockets never plateau – they either keep going up or fall like a stick and US tech giants could crash back to earth in 2019, taking this fund with them," he says.
Chinese tech behemoth Tencent was also a record breaker but in a way investors will want to forget. It suffered the biggest share price slide in history between January and October, losing an incredible $220bn in market capitalisation, reducing it to $380bn.
Long-overlooked defensive sectors such as health care, infotech and utility stocks avoided the worst of the bloodbath in 2018.
Mr Valecha says demand for health care is only going to rise due to the ageing global population and the future looks bright for this sector, with UnitedHealth Group, Pfizer and Merck & Co all performing strongly this year and 2019 looking promising too. “The Health Care Select Sector SPDR Fund (XLV) ETF is ideal for investors who don’t want to take company specific risk," says Mr Valecha.
Mr Mould recommends mutual fund Polar Capital Global Healthcare Opportunities for those keen to invest in health care. “As doubts over global growth grow the relatively defensive qualities of healthcare have come back into fashion.”
Long-term demographic trends, blossoming product pipelines and solid earnings momentum mean healthcare stocks should continue to do well in 2019, Mr Mould adds.
US consumers entered December in a confident mood, spending $7.9bn on cyber Monday on November 23, making it the biggest online shopping day in US history.
Mr Valecha says if confidence holds up this could be good for many consumer companies.
“With US unemployment at a 49-year low and wages growing 3.1 per cent in the year to October, the outlook may still be positive for Amazon, Starbucks, McDonalds and department store firm TJX Companies," he says.
Infotech giants Microsoft, Visa, MasterCard and Cisco have done well this year as global businesses log onto the benefits of cloud computing. "Visa and MasterCard have also benefited from free-spending US consumers, as cash is no longer king," Mr Valecha adds.
Mr Mould says the cyber-security sector is growing strongly and UK-listed fund L&G Cyber Security ETF could be a good way to play it. “Consumers and corporations are taking the issue of digital security seriously and this ETF tracks key names including FireEye, Symantec and NetScout. The fund is 85 per cent invested in the US, with small exposure to Japan and the UK.”
Cyber-security stocks have lofty valuations but withstood the October wobble in good shape and could deliver further gains in 2019, says Mr Mould.
The utility sector, which covers water, gas and electricity companies, has shown its defensive capabilities to grow a steady 3 per cent this year, Mr Valecha says. “NextEra Energy, Exelon Corporation and AES Corporation were the best large cap performers and utilities should continue to perform well in 2019. Vanguard Utilities ETF is an ideal way to gain exposure.”
Interest rate sensitive sectors like US housing and utilities are likely to outperform in the near term if the Fed slows the pace of rate increases but could wilt otherwise, he adds.
Gordon Robertson, director of financial advisory group InvestMe Financial Services in Dubai, warns that this year's winners often become next year's losers. "Beware buying something that has been moving up in the recent past, often it is better to buy the strugglers instead.”
He suggests spreading risk with a global spread of stocks and tips the iShares Edge MSCI Intl Value Factor ETF that invests in large and mid-cap stocks, or the iShares Core Conservative Allocation ETF for more cautious investors.
This year was very different compared with 2017 and we may see another shift in 2019. Just remember past performance is no guide to the future. It wasn’t this year and it almost certainly won’t be next year either.