CFM INDOSUEZ Wealth Management - 2019 annual report

Activity report 2019 CFM Indosuez Wealth Management Pau l Wetterwa ld Chief Economist Indosuez Wealth Management What a difference a year makes! Whereas 2018 ended with a sharp correction in the financial markets, it was an entirely different story in Q4 2019. All asset classes closed at a much better-than-expected year on a high note, posting positive performances across the board. Equities significantly outperformed bonds, with higher-risk bond segments coming out on top. As a general rule, commodity prices were up —especially gold and oil prices. Does that mean macroeconomic conditions and the geopolitical environment drastically improved? Answering that question calls for a nuanced analysis. r e s i l i e n t g r o w t h Global GDP growth weakened over the course of the year, probably steering towards 3% in real terms. However, fears of a recession never materialised. The No. 1 global economy, the United States, may have slowed from 3% YoY at end-2018 to just over 2% at end-2019, but that did not stop it from turning in a more than respectable performance —roughly doubling that of the euro zone. Meanwhile, the euro-zone more or less managed to stabilise GDP growth at around 1%. Paradoxically, Brexit did not end up causing UK growth to vary significantly from euro zone growth. Of course, this bird’s eye view of macroeconomic performance tends to mask the relatively ubiquitous struggles of the manufacturing sector. In fact, we have to look all the way back to June 2009 to find a lower ISM (Institute for Supply Management , a survey of the business climate in US industry) value than in December 2019. Which is actually fairly paradoxical considering that US protectionist measures were aimed, amongst other things, at giving a shot in the arm to industry, but is understandable considering that globalisation is synonymous with interdependence in production processes. Not surprisingly, China (nicknamed the “World’s Factory”, right or wrong) was unable to escape the Not surprisingly, China was unable to escape the downward pull. downward pull. However, looking at official data, its economy posted resilient growth, dipping from 6.4% YoY at end-2018 to around 6% at end-2019. As it stands, more than one-third of global GDP growth was still derived from China. r o b u s t j o b m a r k e t Weaker growth did not result in a downturn in the job market in mature economies, either because growth was not significantly weakened or because unemployment is a delayed variable of the economic cycle. In any event, the unemployment rate came out at 3.5% in the United States in November 2019 (a record low since 1969), 7.5% in the euro zone in October 2019 (lowest rate since May 2008), 3.8% in the United Kingdom in October (the last time it was lower was December 1974) and 2.3% in Switzerland (a record low since spring 2002). We would also point out the structural change at work in China since 2016: the working-age population has been shrinking year after year, simultaneously limiting the need to create jobs and hampering potential growth. i n f l a t i o n a n d m o n e t a r y p o l i c i e s In the US, the CPI rose from 1.9% YoY in December 2018 to 2.1% in November 2019; in the UK it fell from 2.5% to 1.5%; in Japan from 0.7% to 0.5%; in the euro-zone from 1.9% to 1.3% (in December); and in Switzerland from 0.9% to 0.2% (again in December). Setting aside differences in terms of levels or variations, what these figures have in common are that they are all either below or in line with the target set by the central banks in their respective countries. In other words, these institutions have no reason to veer from their accommodative monetary policies. Situations in emerging countries varied. However, barring the odd exception, monetary policies remained expansionary, particularly as emerging countries appeared to be facing less external risk. More specifically, we would point out China’s monetary stimulus measures despite inflation (4.5%) sitting above the 3% target. 17