The world's second- and third-largest economies saw their stock markets savaged in 2018. It didn't feel like a particularly pessimistic year until the very end, but traders will be gloomy as they head off to New Year's revels.
China has been the worst performer among major markets globally. The CSI 300 Index closed down 26.3% for the year, and you're looking at no gains at all over the last four years if you've bought and held since late 2014.
Immediate prospects don't look good. Fresh data on Monday showed that China's manufacturing sector contracted in December, the first decline in more than two years. That's a downturn likely to continue for the next few months.
It isn't just manufacturing that is suffering. The poorest recent performers are biotech stocks. The CSI 300 Health Care index is down 14.6% in the last month, and the CSI 800 Pharmaceutical & Biotechnology index is off 12.6%.
The trade war's effect is clear in the poor performance of the CSI 500 Semiconductor index, with chipmakers suffering an 11% average loss in December. The woes facing Huawei Technologies and ZTE have cast a pall over the whole sector.
Life wasn't a lot better a little farther north. The Topix index of all stocks in Tokyo's main First Section contracted 17.8% for the year. My home Hang Seng index, dominated by Chinese but largely service-sector stocks, looks good by default with a 13.6% decline.
The great market surprise came in India. The benchmark Sensex index gained 6.0%. In Wellington, the NZX50 marked a great year for New Zealand's market, up 4.9% and in strong contrast to the 6.9% decline across the Tasman Strait in Sydney.
Where will we head in 2019?
Japan does everything differently -- turnstiles, taps, maps sometimes work the "other way" around. I remember being extremely confused looking at a "helpful" tourist map of a Tokyo neighborhood, trying to figure my north from my south in kanji and katakana script, only to realize that the map had an axis based on the direction in which I was looking, rather than the standard N-S.
A foreign currency normally spells a healthy economy. But a strong yen is a cause for hand-wringing in Tokyo, where major exporters dominate mindshare as well as market share.
As global stocks have sold off, Japanese investors have taken risk off the table by selling U.S. equities and bonds, repatriating the cash into domestic markets. The high cost of hedging their U.S. holdings has also put them off.
The inflows into Japan have spurred new strength in the yen, which has strengthened to eight-month highs; it is up 3.1% against the U.S. dollar since the start of December despite a strong run for the dollar. The yen is up 5.3% against the euro since the end of September.
The Bank of Japan is desperate to generate inflation. It was pretty pleased to have abandoned its stimulatory policy of negative interest rates. But the 10-year Japanese government bond finds itself once again yielding in the red at a negative 0.02% on this last day of 2018. The yield was a heady 0.17% as recently as October.
The Chinese yuan has been weakening, which is also a worry. It's down 9.6%, and at times was down by double digits against the U.S. dollar since last spring. At the start of December, it almost breached CNY7.0 to the greenback, a level last seen a decade ago.
The central banks of Japan and China also love catching traders by surprise, and aren't afraid of intervening to stem a one-way currency flow. Indeed, the Bank of Japan times its interventions for lunch breaks to catch foreign exchange traders mid-bento box.
So I wouldn't expect to see a lot more yen strength from here. Japan will have a major election in mid-year, a situation that Prime Minister Shinzo Abe historically has used to introduce stimulatory, vote-winning policies.
Beijing has its hand over most market moves in China. You can be sure President Xi Jinping is not too keen to see the CNY7.0 high-water mark breached as the testy trade war devolves into talks.
It seems increasingly likely that Beijing will inject fresh stimulus into the Chinese economy in 2019. The People's Bank of China and banking regulators also have plenty of scope to change now-tight credit rules to stimulate lending.
If the trade talks do yield results that both Xi and Trump can trumpet, sentiment in China could swiftly shift. Couple that with the cash taps turning back on and I would not be surprised to see China's stock market turning the world's worst performance into one of the best for 2019.
It may be mid-year before we see a marked shift, but I expect to see traders celebrating a little more heartily by year-end 2019 after a strong second half to next year.