January saw divergent performance for equities, with developed market stocks ending the month lower while emerging market shares posted positive returns.
Initially, markets continued the rally from Q4 2020, buoyed by global vaccine roll outs and the promise of further fiscal and monetary stimulus. However, the positivity soon gave way to nervousness and markets sold off over concerns about delays in the supply of vaccines in Europe, and a technical driven sell-off towards month end.
China drove the outperformance of Emerging Markets stocks, aided by strong performance from e-commerce and internet stocks. Strong economic momentum in the country means China is likely to be only large economy to achieve positive GDP growth in 2020.
In the UK, the flash composite PMI fell sharply from 50.4 to 40.6 in January, indicating a significant hit to the economy from the latest restrictions. The vaccine rollout, however, has been relatively successful.
In fixed income, government yields rose early in the month (meaning prices fell). In the US, the Democrats secured control of Congress to raise expectations of more fiscal stimulus and the rise in yields in US Treasuries was higher than in Europe.
Energy performed well after Saudi Arabia unexpectedly announced a unilateral cut in output. By contrast, gold sold off in the month.
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