z-kolkiemz-kolkiem

January’s investment market commentary

Financial markets started the year full of optimism, but mostly ended the month in negative territory, as an early return to a more normal economic environment is a clear risk to current market valuations, as Andrew Yeadon’s update explains.
Published 5 February
3 mins

Financial markets started the year full of optimism but ended the month mostly in negative territory. The late month turnaround was a response to growing worries about the spread and mutation of COVID-19, a slower than expected rollout of COVID-19 vaccinations (especially in Europe), and worries about speculations and potential asset bubbles (e.g. Bitcoin / Tesla / GameStop).

US politics was never far from the headlines in January with the unprecedented violent mobbing of Capitol Hill which led to Trump’s impeachment and Joe Biden’s inauguration as the 46th president. The start of the month also saw the Georgia Senate runoff which gave the Democrats control of the Senate, and completed the third leg of the Blue Wave. With Democrats in control of Congress and the White House, the prospect of a significantly larger US fiscal stimulus put upward pressure on government bond yields. The rise in yields was only partly reversed after US Federal Reserve Chairman Powell reiterated a commitment to an extended period of low interest rates and reassured investors that lessons had been learnt since the ‘taper tantrum’, when a sharp rise in bond yields upset all asset classes.

However taking the ‘punch bowl away’ will be a much more difficult task than easing policy to its very limits proved to be. The taper tantrum and Powell’s attempts to raise US interest rates early in his tenure tell us a lot about how addicted markets have become to central bank largesse. Even though it is probably some way off, it’s hard to envisage an easy exit from these policies. Certainly, an early return to a more normal economic environment is a clear risk to financial market valuations.

Equity markets fell slightly (-0.9%) as measured by the MSCI AC World Index in US dollars. The best performing regions were those with a better control of the pandemic, such as Asia ex Japan (+3.7%) and Emerging Markets (+2.7%). UK equities (-0.6%) were supported by its impressive start to the vaccine rollout, while Europe ex-UK (-2.2%) lagged as the EU’s program was found wanting. The strongest sectors were ‘stay at home’ Communication Services (+0.7%), Healthcare (+0.7%), and Energy (+1.4%) after a strong rally in oil prices. The weakest sectors were an eclectic mix of Consumer Staples (-4.3%), Industrials (-2.9%), Financials (-2.1%) and Utilities (-1.6%). In terms of Style, Growth (-0.5%) outperformed Value (-1.1%), while Smaller Companies (+1.4%) outperformed Larger Companies (-0.9%).

Within fixed income, the rise in government bond yields meant that higher yielding corporate bonds, as measured by the ICE Merrill Lynch Global High Yield Index (+0.2%), outperformed investment grade credit and safe haven government bonds, with the Merrill Lynch Global Corporate Investment Grade Index down -0.8% and the JP Morgan Global Bond Index down -0.9% (all hedged to US dollars).

Commodities rose in aggregate with the Bloomberg Commodities Index up +2.2%. Crude Oil (+6.9%) was the strongest area after OPEC+ agreed to additional productions cuts. Agriculture (+4.4%) was also solid on the back of supply concerns. In other areas, Industrial Metals (-0.4%) declined slightly over the month, while safe haven Gold (-3.0%) was the weakest sector, hindered in part by a stronger dollar and rising bond yields, which increase the opportunity cost of investing in the precious metal.

In terms of currencies, the pound was strong on the back of the Brexit deal and the UK’s efficient vaccine roll-out, appreciating against the US Dollar (+0.3%), Euro (+0.9%), and Japanese Yen (+1.7%). However, the Pound saw its biggest gains against emerging market currencies, such as the Brazilian Real (+5.7%), Mexican Peso (+3.4%), and the South African Rand (+3.4%).

(Notes: All monthly data is quoted in Sterling terms unless otherwise stated).

INDEXEND DECEMBER VALUEEND JANUARY VALUE
FTSE 1006460.526407.46
DJ Ind. Average30606.4829982.62
S&P Comp3756.073714.24
Nasdaq 10012888.2812925.38
Nikkei27444.1727663.39
£/$1.3671.3708
€/£0.893740.88555
€/$1.22161.2136
£ Base Rate0.100.10
Brent Crude51.855.04
Gold1898.361847.65

 

This month’s values quoted as at 29/01/2021. The above values are sourced from Bloomberg and are quoted in the relevant currency.

Clients of Nedbank Private Wealth can get in touch with their private bankers directly to understand how their portfolios are responding to market events or call +44 (0)1624 645000 and speak to our client services team.

 

If you would like to find out more about how we help manage clients’ investments, please also contact us on the number above. Or you can get in touch using the links to the forms towards the end of this page.

Investments can go down, as well as up, to the extent that you might get back less than the total you originally invested. Exchange rates also impact the value of your investments. Past performance is no guide to future returns. Any individual investment or security mentioned here may not be suitable, and is included for information only and is not a recommendation. You should always seek professional advice before making any investment decisions.

Access more of our insights

Investing

Is environmental transition a new industrial revolution?

31 May

   |   3½ mins

Can sustainable investments offer sound financial returns as well as sound environmental practices in the fight against climate change?

Investing

The week in review

23 May

   |   4 mins

During the week of 15 May 2023, investor sentiment was buoyed by a more positive tone in the US debt ceiling negotiations. But continued tightness in labour markets prompted more hawkish comments from central banks on their determination to reduce inflation.

Investing

The week in review

16 May

   |   4 mins

The week of 8 May 2023 was a mixed week for markets. US equities and bonds advanced as investor confidence grew following better than expected inflation data. However, weaker data releases renewed fears of a slowdown and led to a risk-off sentiment.

Investing

April's investment market commentary

12 May

   |   3 mins

April was a quieter month for markets as attention focused on further rate increases, given stronger economic data and signs of more persistent inflation. Simon Watts explains.

Get in touch

If you are interested in becoming a client, please complete the form via the ‘become a client’ button below. Alternatively, if you are already a client, or if you have a question about how we help clients in particular circumstances, please use the ‘contact us’ button.


We will get back to you as soon as we can during office hours, which are Monday to Friday, 8am to 8pm (UK time), except for UK public holidays.

Become a Client

Thank you for your interest in Nedbank Private Wealth. Please call us on +44 (0)1624 645000 or complete the requested information and one of our team will get back to you soon. We look forward to speaking with you.  Please note: If you are an EU resident, we are unfortunately unable to offer our services to you at present.

* Required fields

Contact Us

Please call us today on +44 (0)1624 645000. Our office hours are weekdays from 8am to 8pm (UK time), except for UK public holidays.

 

Or please complete and submit the below form and one of the team will get back to you as requested.

* Required fields

Search suggestions