The week in review

What’s happened in markets?

Figures as of end of trading on 29/1/2021

Both Moderna and Pfizer released results showing that their vaccines remain effective against both the South African and UK variants, although not as effective as against the original strains. As such, Moderna is now working towards a booster, while trial data was published by NOVAX and Johnson & Johnson, with the latter seen as a game changer as it only requires one dose.

The vaccine roll out also became political as the EU and AstraZeneca attempted to iron out vaccine supply issues, with EU officials demanding the use of British production facilities to cover the shortfalls. Meanwhile, the EU tightened the rules on the export of COVID-19 vaccines, which now require companies to obtain prior authorisation before shipping vaccines, which could spell trouble for the UK in the coming week.

The US released Q4 gross domestic product (GDP) data showing the economy grew at an annualised rate of +4.0%, meaning that GDP for the whole of 2020 contracted by -3.5%. It came as the Federal Reserve announced no changes to its current policy stance, while its key message is that “the whole focus on exit is premature”. The latest economic growth figures for Germany, France and Spain were weaker than that of the US, but surprised to the upside. Meanwhile in the UK, the unemployment rate for the three months to November rose to 5.0% (instead of the 5.1% expected), its highest level in over four years. Finally, the International Monetary Fund revised its global growth forecast for 2021 up to +5.5% and left its 2022 forecast unchanged at +4.2%.

While bond markets were relatively quiet, all equity markets declined by at least 3%, with the weakest regions being Asia ex Japan (-4.97%) and Emerging Markets (-4.65%). The market sell-off wasn’t, however, focused on any particular investment styles. There was barely any difference between growth and value stocks, or large capitalisation stocks and their small peers (all down -3.74%). Defensive sectors, such as utilities
(-2.27%) and consumer staples (-1.80%) held up a little better than the cyclical sectors, e.g. materials (-4.58%) and industrials (-4.35%).

Also in the news was the battle between Wall Street and speculative retail investors that led to a number of down-trodden stocks being pushed up by around 300% at their highest points. This was due to coordinated, targeted investments by users of the WallStreetBets forum on the Reddit social media platform. It seems the aim was to target stocks shorted by hedge funds, such as video-game retailer GameStop, in the hope of triggering institutional investor losses. The efforts appear to have been successful given reports from hedge funds, with the role of the US market regulator, the Securities and Exchange Commission, as well as trading platforms, being questioned.

What’s happened in portfolios?

Among equity holdings, the strategies most exposed to Emerging Markets and cyclicals gave back a little of recent relative gains during the week of 25 January, while those more exposed to developed market stable earners outperformed. Over January, however, our Emerging Market exposure added value given it makes up a significant percentage of our overall equity positions.

Within bonds, there was only a minimal difference in return between our best and worst performers. And over January as a whole, we performed slightly better than the index due to our short duration positions.

Property was pretty solid last week. Global real estate investment trusts had a much better time of it than global equities, while BMO Commercial Property highlighted that rent collection had been reasonably robust and, in the first nine months of 2020, it collected 90% of rents expected, easily covering the current dividend pay-out. Renewables have benefited from the recent rise in wholesale electricity prices from the lows seen in 2020.

What’s happening this week?

4 Feb • Bank of England meeting | January PMIs | 111 S&P500 firms’ earnings updates.