Introduction

Festive Forecasts – 2019 ReviewBy Anthony Warr

The continued media tradition at this time of year is to ask experts to share their “outlooks” for investment markets in the year ahead. Let's have a look at how 2019 went to see how much faith should you place in these forecasts.

Festive Forecasts – 2019 Review By Anthony Warr

antthony warr

The continued media tradition at this time of year is to ask experts to share their “outlooks” for investment markets in the year ahead. Let's have a look at how 2019 went to see how much faith should you place in these forecasts.

Back in late 2018, the mood was unremittingly gloomy. Global share markets had posted their worst annual performance in seven years. The Aussie market had fallen about three per cent over the year, its first decline since 2011.

When journalists were writing their reviews, markets were particularly volatile. The fourth quarter was a difficult one amid headlines about the US-China dispute, Brexit, interest rates and warnings from IMF of a slowdown in global growth.

Against that backdrop, many economists quoted in these reviews were pessimistic about prospects for 2019. ABC News in Australia ran with a story saying experts were predicting a bumpy ride for domestic shares in the coming year.1

The Australian market also faced local uncertainties in the looming final report of the Hayne Royal Commission into financial services, plus a federal election that polls suggested would lead to a change of government.

Currency markets were feeling the heat as well, with the Australian dollar falling to a 10-year low beneath 70 US cents as the year turned. Analysts quoted by The Guardian said the currency was a victim of mounting concerns about global growth.2

In another year-ender, news.com.au reported that Australia faced four “big scary factors” in 2019 – namely a sinking local housing market, slowing growth in China, the spectre of a US recession and major political uncertainty.3

It was an ominous mix of negative headlines and you can see how all that bad news might have prompted investors to seek a safe harbour while the storm passed.

Yes, a year on the US-China trade dispute is still grinding on. Yes, Brexit is still hogging the headlines.

But at the end of 2019, global share markets had a pretty good year. The US market was at record high, having risen about 29%. The Australian market was up around 21%.  

On Interest rates and currencies, according to The Australian Financial Review, in its survey of economists4, the official cash rate would remain unchanged through 2019 at 1.5%, while the Australian dollar would end the year around 70 US cents.  

As it turned out, the currency was at 70 at end of 2019, however the cash rate was cut three times to a record low of 0.75%.

The economists quoted are doubtless smart people. And their assessment of the risks around geopolitics and economics is valid. They are asked to make educated guesses about the outlook, but they’re still guesses.

Markets change as news changes. While world news is often interesting, it is very difficult to build a sensible investment strategy using the news to forecast movements in currencies, interest rates and share prices. If you had acted on last year’s gloomy commentary, you would have missed a year of substantial gains in shares.

We have two classes of forecasters: Those who don’t know and those who don’t know they don’t know. — economist John Kenneth Galbraith.

A better approach is to build a diversified investment portfolio that maximises your chances achieving your ideal life. Focus on things you can control; like how you allocate your investments, the attention you pay to fees and taxes, and rebalancing your portfolio at least annually.

As much as the media might want to pretend otherwise, the truth is no-one knows what the future will hold. The good news is you can be prepared, rather than having to repair.  Happy New Year!

Sources: DFA Australia Ltd. WARR HUNT acknowledges the assistance of Jim Parker in writing this article.

1Experts Predict 2019 Likely to be Another Volatile Year’, ABC News, 2 January 2019

2‘Australian Dollar Hits 10-Year Low’, The Guardian, 2 January 2019

3Big Four Economic Dramas Australia Faces in 2019’, news.com.au, 23 December 2018

4'Quarterly Survey of Economists’, Australian Financial Review, 1 January 2019