The first quarter of 2019 ended with positive returns on the financial markets for both shares and bonds, and consequently also for the investment funds in which members of Dyrtidsfonden can invest their savings. Measured in Danish kroner, both the global market index and the leading OMXC25 index rose by 14 per cent, reflecting a rebound from the sharp fall in the equity markets at the end of 2018. It was, in particular, the US Federal Reserve’s decision to halt interest rate rises in early 2019 that fuelled the rise in the stock market.
The start of the second quarter of the year has been somewhat subdued. Global equity markets rose at a more moderate pace in April, whilst May has so far yielded a negative return. For LD Discretionary, in which the majority of members’ savings are invested, the total return year-to-date (as at 9 May 2019) stands at 5.3 per cent, which is satisfactory.
Trade war in the spotlight
Investors’ attention is focused on the trade war between the US and China. Until recently, the general expectation in the financial markets had been that the trade war between the US and China would soon come to an end with an agreement in late spring. However, President Trump has most recently announced that tariffs on goods and services from China will be increased significantly in an attempt to press China into making economic concessions. Such an announcement has once again created uncertainty, particularly in the stock market, which has led to falling share prices.
Trump’s announcement came just a few days after key US economic indicators had otherwise shown continued positive trends. Growth is positive, employment figures are at historic highs, and key US industrial production is strong. In China, it is encouraging that financial stimulus has been provided to businesses, given that access to the loan markets is essential for the growth of Chinese companies.
Uncertainty over growth in Europe
Following endless debates in the British Parliament, the Brexit deadline was postponed yet again – this time until October. It is still difficult to predict how Brexit will ultimately play out, but uncertainty in itself is never good for the stock markets. The European economy is still lagging behind that of the US, and key economic indicators from Germany and France have therefore been mixed. For example, the latest reading for Germany’s industrial production index is only just satisfactory, whilst the overall trend for the second quarter is pointing downwards.
The European Central Bank (ECB) is maintaining low interest rates, and the expectation is that the ECB will not tighten monetary policy within the next 6–12 months due to uncertainty surrounding continued growth in Europe.
Outlook for 2019 remains positive
In LD Pensions, growth in 2019 is expected to remain positive, provided that a trade agreement is concluded soon between China and the US and corporate earnings remain strong. However, LD Pensions believes that the stock market may well experience periods of decline.
