2019 proved to be a strong year for equity investors.
Shifts in monetary policy provided support for markets and offset uncertainty about ongoing US-China trade disputes and the slowing global economy.
Recent signs of easing trade tensions have been confirmed by an agreement between the US and China on a Phase 1 deal whereby China is postponing planned tariffs on US autos, and the US has agreed not to proceed with new tariffs, and in some cases, reduce existing ones.
The benefits of the unexpected dovish pivot, whereby the Federal Reserve cut rates three times, have yet to filter through to economic activity. It is unlikely that the same level of accommodative policy continues in 2020.
After a prolonged period of political uncertainty in the UK, the Conservative majority has brought the UK more political certainty and hopes are rising that international investors will no longer shun the UK market in 2020.
This has driven the significant valuation discount relative to comparable global equity markets in recent years; something that overseas corporate buyers took advantage of in 2019, highlighted by the uptick in M&A from overseas corporates.
Although it is early days, we have seen signs of investment returning following the election result. Entering 2020, the UK will be one of the few, if not the only, large developed economy adopting fiscal stimulus.
With the backdrop of full employment, the recently announced increase to the national living wage suggests disposable income will continue to improve with underlying growth in nominal and real wages for the first time in recent years.
Of course, the market generally is likely to remain volatile depending on US-China trade negotiations, the US election later in the year, and the trade deals that will be required once the UK exits the European Union.
We believe in identifying franchises across the UK market that can sustain their competitive advantages over the long term, supporting strong and consistent cash generation.
Therefore, we will continue to focus the portfolio on stock-specific risk.
Adam Avigdori is co-manager of the BlackRock Income and Growth investment trust
• Potential for European fiscal stimulus, or even a global fiscal stimulus policy, which leads to inflation and economic growth
• This causes equity markets to continue to rise, as investors seek risk assets
• US-China trade deal negotiations falter or fail, causing volatility in equity markets
• Growth rolls over, lack of inflation, investors seek safe haven assets and equity markets fall