Investment markets - A review of 2018
The global economy as a whole continued to grow during 2018, driven increasingly by the strength of local domestic demand in the major economies. However, emerging markets were severely affected by the increasing risk of a US-China trade war and the effect US interest rate increases were having on emerging market investor sentiment. Worldwide, inflationary pressures have remained subdued compared to historical levels. The US Federal Reserve continued to raise interest rates every quarter amidst strong US economic growth. The Bank of England raised the UK base interest rate to 0.75% in August.
Although the global economic background remained broadly supportive for equities, escalating trade tensions between the US and China saw most equity markets fall. US equities were relatively more resilient as economic growth was strong enough to offset the escalating trade tensions. However, in the UK and Continental European markets, political uncertainty had a negative impact on investor confidence and prices fell. Elsewhere fears over rising trade tensions were a drag on export-orientated Asia-Pacific companies. Turkish stocks suffered amid US-imposed sanctions, while political uncertainty and industrial unrest saw equity prices in Brazil fall.
Overseas bond markets saw positive returns but struggled to make much headway as central banks continued to withdraw the extraordinary monetary support that has been in place since the global financial crisis began in September 2008. UK bonds in particular struggled to make any headway because of the continuing uncertainty over the Brexit negotiations with the European Union.
The UK commercial property market also saw positive returns with capital growth in the industrial sector outpacing that of the other main sectors. The retail sector was sluggish relying on rental growth for its marginal positive return as capital values on the high street declined.