Market Commentary – January 2021

As 2021 rolls in, so does another lockdown – businesses are closed, schools are shut and the ever-familiar rhetoric of ‘stay at home’ is the main message. As expected, the lockdowns are hurting UK economic figures, recent results show that the UK economy is approximately 8.5% smaller than pre COVID-19 levels. All this news comes on the back of the latest lockdown, which will be in place until 16th February although appears unlikely to be lifted any time before the end of March. UK economists will now be searching for the W shaped recovery option. 

However, it isn’t all doom and gloom. The one bright spot is the successful roll-out of the UK vaccination programme where it continues to gather pace. As of writing there are two approved vaccines for use which are being administered through the government’s vaccination centres. Indeed, the rate of uptake on the vaccine shows that the numbers are on track to meet the government targets which is very welcomed news. 

In the US, Joe Biden was inaugurated as the 46th President of the United States, within hours Biden signed executive orders re-joining the Paris climate agreement as well as introducing measures to fight the Coronavirus outbreak. Importantly the Democrats now have control of the Senate, meaning it will be easier for Biden to advance his legislative agenda. The new president has promised further economic stimulus, starting with an enormous $1.9trn package with news of the stimulus sweeping through global equity markets and resulting in new highs for both the US and Emerging Markets. 

Overall, the US has so far proved more resilient to the coronavirus pandemic than other developed economies. Despite it having the largest number of confirmed Covid-19 cases and deaths, the US economy contracted by 3.5% in 2020, this compares to an average forecasted fall of 3.8% for G20 countries and 11% for the UK. 

All of this pairs into insignificance when you consider China posted a positive figure of 2.3%, admittedly this was helped by a last quarter record push. However, the growth for China is expected to continue in 2021 with forecasted figures of between 7 and 8%. 

Reflecting on 2020, Emerging Markets had a very strong year. This area has benefited from lower covid infection rates, a weakened dollar and increasing US stimulus packages. This can be best demonstrated through the region’s leading indexes. The Shanghai Composite index hit its highest value in 13 years, the Nikkei index hit its highest value since 1989 and the South Korean Kospi index hit a new all-time high. 

Asset ClassProxy1-month return3-month return6-month return1yr return
CashUT Cash/Money Market0.00%00.01%00.04%00.76%
UK Corporate BondsUT UK Fixed Interest-01.69%-01.21%-02.28%03.53%
Emerging Market EquitiesMSCI Emerging Markets02.56%13.82%18.59%22.77%
European EquitiesMSCI Europe ex UK-02.25%13.13%09.55%06.76%
Gilts FTSE Gilts All Stocks-01.70%-00.55%-02.69%02.80%
Japanese EquitiesMSCI Japan-01.45%09.19%18.52%10.30%
PropertyUT Property-00.50%07.99%05.13%-08.34%
UK EquityFTSE All-Share-00.81%16.14%12.47%-07.55%
US EquitiesS&P 500-01.56%06.95%08.53%10.54%

Data Sourced from FE Analytics, and Bloomberg Finance LP