Challenging
financial markets 2018

Last year was one of the most challenging in the financial markets since the last financial crisis. After a friendly start, a first correction already followed in February. The recovery from end of March until May led to a more optimistic investors-sentiment as this move was supported by good economic and company figures. In June the sentiment turned and led to a downtrend, which finally ended for most worldwide stock markets with double-digit negative results at the years end. Only in the USA the bull market did last until October. In November we faced a correction also in America which led the market by years end as well to a negative performance for 2018.

There was practically no asset class, with which one could make money during the last year. In Europe, Switzerland and Japan we had the Zero-Interest-Policy. The US increased in courageous steps interest rates up to 2,25%. Nevertheless, the USD only gained a bit against the EUR. Against Swiss Francs the USD remained nearly unchanged. In this environment it was only possible to get interest in EUR currency by taking high risks and the US bond prices showed a substantial correction while interest rates went up. The 10-year US treasury bond yield went from 2,3 % at the beginning of the year up to 3,3 % on its peak in 2018.

Precious metals, especially gold and silver which are commonly used as security during such geopolitical uncertainties like we saw them last year, did not fulfill the expectations. Silver went from 17 USD/oz in January to a low in November below 14 USD/oz. Gold showed a similar movement und dropped from the top in January at 1.365 USD/oz to 1.160 USD/oz in August before it recovered to 1.280 USD/oz by years end. A feeling like a roller coaster ride.

Everywhere one was told, that economic growth is stable. Company profits outreached estimations and more and more investors did not understand why markets acted like they did. On a political level 2018 came along with some explosive situations. A US president, who followed his way “AMERICA FIRST” without any compromise and mostly driven by emotions, who threatened North Korea with a war, followed by friendly negotiations and later even left the case untouched. One after another was in the focus of the US president’s actions. Russia, at some point a friend, supposed to be a supporter during US-elections, was described as aggressive enemy and punished with sanctions. China was accused because of the imbalance in the US – Chinese trade balance as well as for plagiarism and technology transfer and the US President punished China with high tolls forcing China to do the same. A trade war begun which had an influence on the worldwide economy as many countries profit from Chinas dynamic growth.

Iran was declared archenemy again. It almost seemed, as if some stabilization and quietness in the middle east, has a negative touch for the US president and is not the most favored course of action. Iran committed to the nuclear deal which is also confirmed by the supervisory body. Europe started no sanctions against the Iran, but European companies were under pressure from the US authorities, threatened that they will be penalized if they ignore US sanctions and do business with the Iran. Banks reacted at first and bowed to the US claims and as we all know, without banks there is no trade possible. The positive sentiment in South America some years ago turned completely to the negative in 2018. Argentina with problems, Brazil in turbulences, Venezuela with an inflation rate of 1,3 million % – almost unbelievable – also from that side came no positive impulse.

In order to avoid too much silence in Europe, British politicians could not make a final decision how to execute BREXIT. This led to even more uncertainty so close before the deadline to leave the European Union on March 29th, 2019.

To sum up, the 2018 overall environment with all its challenges affected all market participants and let to mostly negative years end results. Especially investors, who followed a conservative approach aimed at risk diversification and security were hurt badly.

2019 could be better, because stock markets anticipate economic cycles and a lot of negative expectations should be already priced in. Therefore, we are slightly optimistic for the near future. In todays situation, where a lot of forecasts are reduced and only few companies surprise with results above the estimates, the worst could be behind us. Nevertheless, some crucial questions remain yet to be answered at the start of 2019:

• Will there be a solution for the trade war between China and the US?
• Will we see a regulated BREXIT, or do we need to be prepared for a chaotic situation?
• When will the European Central Bank stop their expansive policy?
• Where will President Trump start the next dispute?

We expect to see an exciting, hopefully more positive and enjoyable financial market year for our investments ahead.