International equity markets – that is, stock markets outside the US – finished the year robustly, with the iShares MSCI All Country ex-US ETF ACWX, gaining 7% in the 4th quarter on a total return basis. For the year as a whole, ACWX gained 16.5%. While this was less than the US market’s 28.3% gain as measured by the S&P 500, it was still a strong advance for a year marked by a slowdown in global economic growth, fears of recession, and the US-China trade war. The sustained attraction of equities can best be explained by the historically low-interest rates fed by accommodative monetary policies around the globe, together with international equities having an average yield of 2.4%.

The fourth quarter saw emerging markets recovering from their underperformance earlier in the year. The iShares MSCI Emerging Markets ETF EEM, gained 10.2% in the quarter, permitting this market sector to complete the year with a respectable 14.5% annual gain. In Asia China, Taiwan, and South Korea all outperformed, and in Latin America, Brazil led the recovery as international trade concerns eased and economic reform efforts advanced.

Advanced-economy equity markets in Europe, North America, and Asia continued to hold up in the fourth quarter despite slowing overall economic growth, with sharper declines in the manufacturing sector, which were offset by continued strong consumer demand. Late in the quarter, the easing of the trade confrontation between the US and China reduced Brexit uncertainty and agreement by Congress on a replacement for the NAFTA trade agreement all improved market sentiment. The iShares MSCI EAFE ETF EFA, which covers all advanced-economy equity markets outside of North America, gained 6.8% for the quarter and 17.4% for the year 2019.

The factors that supported international equity markets in 2019 are expected to continue in 2020, with the slowly growing European and Japanese markets avoiding recession and the emerging-market economies on average growing somewhat more rapidly than they did in 2019, perhaps at an average 4.5% pace as compared with 4.1% in 2019%. Monetary policies look likely to remain accommodative for some time, while fiscal stimulus in Europe, Japan, and the US is expected to increase. There will continue to be downside risks, including possible reheating of US-China trade frictions and other disputes, the likely difficult US-Europe trade negotiations, and geopolitical risks (North Korea, Iran). Any one of these could trigger a market correction.