UNCERTAINTY is a constant feature of financial markets. While that is a given, the key consideration for investors will always be to try to understand what that uncertainty relates to and how big the stakes of being exposed to it might be.

Looking back at the uncertainty that marked the period between 2012 and 2016, events such as the UK sovereign debt downgrade, the government shutdown put in place in the US, and the so-called taper tantrum that led to a surge in US Treasury yields were all low-stakes events.

Yet on the other hand, the recent uncertainty seen on both sides of the Atlantic has been, and will continue to be, historically significant.

Questions such as how the US and China will relate to one another over the next decade are difficult to quantify yet hugely important.

Others such as what Britain’s future relationship with the EU will look like in the post-Brexit environment or whether globalisation really is dead are equally seismic.

It is clear that for investors these are all high-stakes issues.

Yet despite the fact that these unknowns were already hanging over global markets in 2019, the past 12 months turned out to be very profitable for investors.

That may seem counter-intuitive, but the strong returns experienced can be explained in part by what came immediately before.

Indeed, with large declines in equity markets, slowing growth and the beginning of a new central bank loosening cycle, the fourth quarter of 2018 may have been the end of the cycle that many investors have been looking for, hiding in plain sight all along.

The reduction of interest rates that followed during 2019 produced returns in excess of 20 per cent in most major markets, as stocks became more attractive relative to the alternatives.

In the real world, the heightened uncertainty has led to a more nuanced picture, with companies distinguishing between short-term and long-term investment decisions.

Buoyed by strong demand from the consumer sector, companies have been willing to take on new workers, as employees can be employed and unemployed relatively quickly if things turn sour.

However, many companies have been unwilling to make capital expenditure decisions, which require longer-term commitments and therefore a higher degree of certainty.

From an investor’s perspective, the more one zooms out from these short-term uncertainties, the more predictable market returns become and, as a result, the higher the probability of generating positive returns becomes.

Against that backdrop, the importance of implementing a long-term investment strategy becomes clear - it allows investors to stay invested, even when the outlook becomes more than a little foggy.

An investor’s strategic asset allocation should be a marriage of their long-term objectives with their market-return expectations.

In times of heightened uncertainty, such as the last 12 months, it has been prudent for investors to position themselves closer to this strategic asset allocation, by having a full allocation to stocks and bonds, both of which have performed very well.

Investors will be hoping for more clarity in 2020, although it is true that greater certainty will reduce potential returns as the risks will be necessarily lower.

If 2019 has been about central banks’ loosening monetary policy, 2020 will need to be about rising profits, something that has been lacking over the past 12 months.

Two particular factors provide hope and are worth monitoring. The first is the decreasing political uncertainty we have seen over the past month, specifically the issues of global trade tensions and Brexit.

In the US, the move towards a phase-one deal with China makes a damaging escalation less likely.

In addition, uncertainty about the future of UK economic policy and Brexit has reduced substantially since the recent General Election.

Investors are hoping that, when combined, these factors could unlock pent-up capital investment, driving economic growth and profits higher over the course of the coming year.

The second factor to watch out for is fiscal policy. After a decade of global austerity, a loosening of the fiscal coffers is now a consensus item both here and in the US Presidential race.

All other things being equal, government spending feeds through to increased corporate profits.

This could turn out to be a significant positive for investors in 2020.

Gordon Scott is regional team head at Julius Baer International.