Report on Q4 2019

Report on Q4 2019

6 Jan 2020

The last two weeks of 2019 were a good year for equity markets. The immediate cause was of course a decisive majority for the Conservatives and the apparent dispatch of Corbynism to the library shelf marked “Historical Fantasies”, perhaps one day to be studied by students who feel that their knowledge of the Venerable Bede is as complete as it will ever be.

From 13 December, the day the results were known, the FTSE 100 rose by 4% to the end of the month, having been down in the quarter up to that point. The star performer in Q4 was the FTSE 250, the most domestically exposed index, which rose by 10%, compared to 2% for the 100 and 3% for the All Share.

Year on year, all the indexes were stars due to a meltdown in Q4 2018 which offered a generous comparison. For 2019 as a whole, the FTse 100 was +12%, the 250 + 25% and the All Share +15%. Wow.

The US 10 year yield was stable at 1.79%. 10 year gilt yields rallied from 0.55% to 0.74%, perhaps reflecting very small worries about more government borrowing.

A year ago when things looked bearish I wrote the following:

Here are three really bad things that could happen in 2019 or preferably later. 1) London house prices fall by 20% rapidly or 40% gradually (or both) 2) A major issuer of government debt suffers a catastrophic collapse in confidence or actually defaults (will the person who said “China” see me afterwards?) 3) A neo-Marxist garden gnome becomes Prime Minister of Great Britain.

At the time I said that I was bored by politics and Chinese trade wars. On those fronts the noise has remained much the same. Donald Trump is a year closer to re-election, subject to the Democrats deciding to try to defeat him democratically rather than with the law.

Climate change activists have got louder and sillier, though following COP 25 in Madrid, at which 27,000 delegates achieved very little, there was some overdue acknowledgement of the tension between the economic demands of poor countries with hundreds of millions of people living in poverty and the schoolgirl demands of sacrifice from the first world. You can find an impressively balanced description of this in BP’s Annual Report.

“There are two defining priorities for our industry. One is to produce more energy to meet growing global demand as emerging economies develop and provide people with a better quality of life. The other is to play our part in reducing greenhouse gas emissions. I am of the view that more energy with fewer emissions – the dual challenge – can be met if a progressive and pragmatic approach is taken to the energy transition.”

That’s from Helge Lund, BP’s Chairman, a Norwegian whose predecessor was a Swede. Scadinavians are all over this topic.

I don’t expect it any time soon but it will be interesting to see if the climate industry ever decides to work with rather than against the energy industry. In the meantime, I own BP for its 6% dividend yield.

Looking ahead, as mentioned here, I expect money to be thrown at the domestic UK economy and this to be generally good for share prices and less good for bonds. There will be a new Governor of the Bank of England who might turn out to be less of a political operator than his predecessor, which would be nice. Interest rates can go up as well as down.

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