Monthly Markets Review – May 2021

A look back at markets in May when shares moved up on re-opening and vaccine optimism, although rising inflation sparked some concerns.


  • Developed market equities gained in May with the ongoing vaccine roll-outs and fiscal stimulus measures helping to offset concerns about rising inflation. Emerging market shares also advanced, aided by US dollar weakness.
  • Government bond yields were little changed in May. US investment grade corporate bonds produced a solid total return and continued outperforming Treasuries.
  • Commodities gained, with precious metals the best-performing index component.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

US

US equities rose in May. Economic momentum showed further signs of acceleration as industries reopened and vaccine roll-outs continued, which lifted investor spirits.

The composite purchasing managers’ index (PMI) rose to 63.5 in April, indicating significant expansion. Driven by the services component, this suggests the services recovery is now underway. The PMI is an index of business activity based on a survey of private companies in the manufacturing and services sectors. A reading above 50 means the economy is expanding.

Headline consumer price inflation rose 4.2% year-on-year (y/y) in April, the highest level since September 2008 and sparked some nascent concern it could prompt tighter monetary policy. Federal Reserve (Fed) officials have indicated cautious optimism about the recovery, with some members being open to discussing tapering “at some point in the upcoming meetings”, if the economy continued to make rapid progress.

A blot on the otherwise bright landscape, non-farms payrolls added just 266,000 jobs last month compared with economists’ expectations of almost one million positions created over the month. While leisure and hospitality added 331,000 jobs, there were losses in other sectors of the economy, including car manufacturing, temporary help and retail. Moreover the unemployment rate edged up to 6.1%. Car manufacturing has been hit recently by disrupted supply chains.

Corporate earnings reflected the economic vigour, with Q1 earnings on track to be the strongest in over a decade. The strongest performance was by equities sectors closely tied to economic growth such as energy and materials, which performed well. Consumer discretionary lagged, partly as a shortage of semiconductors has caused shutdowns in auto production.

Eurozone

Eurozone shares posted another advance in May and outperformed other regions. The vaccine roll-out continued to pick up the pace in several countries. As of 31 May, 43% of the German population had received at least one vaccine dose with France and Italy on 38%, according to Our World In Data.

Restrictions on social and economic activity were generally loosened further. This resulted in greater optimism over the economic and business outlook for the rest of the year. The energy, financials, consumer staples and discretionary sectors led the advance while healthcare, information technology and utilities were laggards.

Shares were further supported by an exceptionally strong corporate earnings season, even accounting for the soft comparison with Q1 2020. Sectors that are sensitive to the economic cycle fared well in terms of earnings, benefiting from a combination of demand recovery, pricing power and supply constraints.

Forward-looking data continued to be very encouraging. The flash composite PMI rose to 56.9, a 39-month high, with the services component rising strongly as easing Covid restrictions helped fuel higher demand. Despite the improving economic outlook, European Central Bank (ECB) policymakers signalled that it is too soon to withdraw stimulus measures. Annual inflation was confirmed at 1.6% for April although this rose to 2.0% for May.

UK

UK equities rose over the month with a number of domestically focused sectors performing well as confidence grew around the re-opening of the economy.

The government pushed ahead with the latest easing of lockdown measures amid a rise in infections related to the ‘Indian’ variant of Covid-19. Concerns as to whether the variant might delay the removal of social distancing laws on 21 June did result in some domestically focused sectors giving back some of their recent very strong gains. However, in general, the outlook for UK consumers and businesses improved, resulting in various forecasters upgrading GDP predictions.

The Bank England announced plans to slow its quantitative easing programme. Investors were preoccupied by the potential implications should the current pick-up in inflation, from a very low base in 2020, be sustained. It was against this backdrop that the domestically focused banks and life insurance companies outperformed the overall market.

In contrast, large internationally diversified financials were negatively impacted by sterling strength and a weak US dollar in particular. Likewise, the lowly valued internationally diversified resources companies underperformed. Fears over currency impacts on their dollar earnings outweighed the ongoing strength in crude oil and industrial metal markets. The utilities sector performed very well amid rising wholesale electricity prices, in an otherwise mixed month for less economically sensitive, or defensive areas of the market. Merger and acquisition activity reaccelerated with a number of new deals announced.

Japan

After a sharp decline in the second week of May, the Japanese stock market subsequently recovered as global inflation fears receded to close up 1.4% for the month. The yen weakened slightly against the US dollar which provided some support for equity market sentiment. 

Although the rate of Covid infections in Japan remains markedly below most other countries, the persistent increase in cases led the government to extend the state of emergency throughout May in several areas, including Tokyo. This, together with slow progress in the vaccine roll-out, further damaged the credibility of the Suga administration. Although we could still see additional restrictions imposed, the political timing is now complicated leading into the start of the Olympics in late July. Towards the end of May we have seen a substantial acceleration in the vaccination rate as several mass vaccination centres finally started operation.

Consumer sentiment has inevitably been impacted by the latest restrictions imposed under the state of emergency. However, real-time data suggests the real effects may be slightly milder than those seen in previous periods of restriction.

The corporate results season was completed in May with the majority of companies reporting numbers in line with, or slightly ahead of, consensus expectations. The number of companies reporting profits below expectations has been significantly lower than normal in each of the last two quarterly earnings seasons. This positive skew in results is mainly due to successful programmes of cost control across multiple market sectors. Meanwhile, the ongoing global recovery is continuing to support industrial production.

Asia (ex Japan)

Asia ex Japan equities recorded a modest gain in May. Although shares were weaker earlier in the month, on the back of higher-than-expected US inflation data, equities recovered later in the month, driven by a weaker US dollar.

India was the strongest market in the MSCI AC Asia ex Japan index. This strong performance came despite the country grappling with rising numbers of Covid-19 infections and India remains one of the countries worst-hit by the pandemic. The Philippines and Pakistan also achieved strong gains in the month and outperformed the index. Gains achieved by China, Hong Kong and South Korea were more modest. In China, the slow roll-out of Covid-19 vaccines and regulatory concerns over the country’s technology sector held back market returns.

Increasing Covid-19 infections in a number of countries weighed on returns in a number of markets in the index, with Malaysia, Singapore and Thailand all ending the month in negative territory. Shares in Taiwan also declined in May, as a rise in Covid-19 infections prompted the imposition of tighter restrictions. By sector, energy, utilities and healthcare were the strongest, achieving solid gains in May. Conversely, consumer discretionary, communication services and information technology were all weaker, ending the month in negative territory.

Emerging markets

Emerging market (EM) equities generated a positive return amid ongoing signs of global economic recovery and the transition out of the pandemic. US dollar weakness was beneficial. The gains came despite a sell-off early in the month, as a higher-than-expected US inflation reading renewed concerns over the timing of global monetary policy tightening.

The euro-linked economies of Hungary, Poland, and the Czech Republic were among the best performing markets. Stronger commodity prices were supportive of a number of EM including Peru, Russia, Brazil and South Africa. India also outperformed the MSCI EM index amid signs that the current wave of Covid-19 may be peaking. By contrast, Chile registered a negative return as policy uncertainty increased. Egypt also finished in negative territory, as did Taiwan which saw an outbreak of coronavirus cases. China, where the government announced new regulations for the technology sector, and South Korea also posted slightly negative returns and underperformed the index.

Global Bonds 

Government bond yields were little changed in May, consolidating having sold-off since the start of the year. The US 10-year Treasury yield was three basis points (bps) lower at 1.59%, and the UK’s 10-year fell 5bps to 0.80%, both having risen significantly year to date.

Bond yields rose earlier in the month, as data showed headline US consumer price inflation rose 4.2% year on year in April. US core personal consumption expenditure, which excludes food and energy, rose 3%, the largest increase since 2006.

European yields continued to rise initially, with the vaccine roll-out and economic recovery gaining traction, then fell in the last week of May on dovish comments from the ECB.

The 10-year Bund yield increased by 2bps to -0.19%, reaching an intra-month high of -0.11%. Italy’s and Spain’s finished unchanged, at 0.91% and 0.46% respectively, after declines of 12 and 8bps in the final week.

US investment grade (IG) corporate bonds produced a solid total return and continued outperforming Treasuries. European IG was marginally weaker, in line with government bonds. High yield corporate bonds saw further positive returns, but due to income. Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade.

Emerging market bonds made positive returns, ahead of developed markets, led again by high yield. Commodities prices continued to rise. Emerging market currencies broadly performed well as the US dollar weakened. 

Despite the tailwind of positive equity markets, the convertible bonds universe came under pressure in May. Information technology, disruptive consumer names, and the “Covid winners” in general ended the month with a loss. The Refinitiv Global Focus index, which measures balanced convertible bonds, shed -0.7%.

Commodities

The S&P GSCI Index recorded a modestly positive return in May, reflecting how the economic rebound in the world’s largest economies is bolstering demand for metals, food and energy while supplies remain constrained. The increase in May was more muted than in recent months on growing concerns over inflation. Precious metals was the best performing component of the index, with strong gains for both gold and silver. Industrial metals also achieved a good performance in May, led by gains for zinc and copper.

The energy component was also higher in the month, led higher by heating oil and gasoil. Crude oil and Brent Crude also gained during the month, reflecting how countries around the world are starting to return to normal patterns of consumption. In the livestock sector, prices for feeder cattle and lean hogs gained while prices for live cattle were modestly lower in the month. The agriculture sector recorded a negative performance over the month, led by sharp declines in wheat and Kansas wheat. Cotton was also lower in the month, while coffee recorded a strong gain.


The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Monthly Markets Review – April 2021

A look back at markets in April when shares gained with the US leading the way.


  • Developed market equities gained in April with the US leading the way, buoyed by a swift vaccine roll-out and fiscal stimulus measures.
  • Emerging market shares saw positive returns but lagged developed markets. The pandemic continues to be a major concern in several emerging markets, notably India.
  • The sharp sell-off in US government bonds came to a halt in April, helped by comments from the Federal Reserve.  
  • Commodities gained with agriculture the best-performing index component.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

US

US equities made solid gains in April. Economic data was encouraging overall. Q1 GDP growth of 6.4% (quarter on quarter, annualised) narrowly missed expectations of 6.7%, and the trade deficit widened. Even so, aggregate business activity – as measured by the composite purchasing managers’ index (PMI – an index of business activity based on a survey of private companies in the manufacturing and services sectors) – climbed to 59.7 in March. The gain was led by the service sector, signalling the biggest uptick since 2014. Consumer confidence, while still below its pre-pandemic level, also rose strongly. Meanwhile, 70% of the US population has now had at least one shot of the vaccine.

And while the recent data have been encouraging, the policy environment is set to stay highly accommodative for some time. President Biden has followed up his $1.9 trillion fiscal stimulus bill with a proposed $2 trillion in infrastructure and manufacturing subsidies. The Federal Reserve (Fed) also confirmed its willingness to run the economy “hot” – or above the long-term inflation target – to the support economic recovery and full employment. It further stated it expects its targets for stable economic growth are still “some time” away and that asset purchases would continue until then.  

Investor sentiment was supported by the combined economic and policy backdrops, but also a robust earnings season. Big tech firms were particularly strong – the combined revenues of Alphabet, Amazon, Apple, Facebook and Microsoft jumped 41% in Q1. Consumer discretionary stocks were also buoyant, tallying with rising consumer confidence. Energy and consumer staples lagged the wider index with weaker aggregate gains.

Eurozone

Eurozone shares also gained in April. After the outperformance of lowly valued parts of the market in recent months, higher growth areas tended to perform better in April. At sector level, information technology was among the top performers along with real estate and consumer staples. Energy registered a negative return. Within the consumer discretionary sector, automotive stocks saw some profit-taking after March’s strong gains, while luxury goods fared well. The Q1 earnings season began on a positive note. In particular, several banks have been able to reduce reserves, or lower provisioning levels, because government and central bank support has so far averted a wave of bad loans.

Several countries, including Germany, continued to battle rising Covid-19 infections. However, rates slowed in Italy, enabling the government to loosen restrictions in some regions. Many eurozone countries began to speed up the roll-out of Covid-19 vaccines. Germany’s constitutional court rejected an appeal against the EU recovery fund, which is set to be disbursed from July.

GDP data showed the eurozone economy contracted by 0.6% in Q1. Forward-looking data was more encouraging with the manufacturing PMI survey reaching a new record high of 63.4. Eurozone annual inflation was estimated at 1.6% for April, up from 1.3% in March. However, the core measure, which excludes energy prices, was up just 0.8%. The European Central Bank had quickened the pace of its asset purchases in March, due to the renewed wave of the virus, and confirmed in April that it would maintain this pace so as to avoid a rise in borrowing costs that could jeopardise the economic recovery.  

UK

UK equities performed well, led by small and mid cap stocks as the FTSE 250 index hit all-time highs. The market recorded another strong month despite a partial reversal of the trend for lowly valued stocks (where the UK market is well represented) to outperform. The lowly valued large oil and gas companies underperformed, despite ongoing strength in crude oil prices. Financials also lagged for the majority of April, although they bounced back sharply in the final week following encouraging Q1 results from large cap banks. Mining companies (helped by strong commodity prices) and UK domestically focused stocks escaped the broad rotation away from lowly valued areas.

It was strength in domestic areas of the market which helped propel the FTSE 250 past 22,000 for the first time. Domestic stocks were buoyed by encouraging economic data as the country took additional steps to ease lockdown restrictions, with retailers, housebuilders, business support services companies and construction groups all performing very well. The Office for National Statistics confirmed that UK retail sales had surged in March ahead of the lockdown easing, up 5.4% month-on-month and 7.2% year-on-year, well above expectations for 1.5% and 3.5%. House prices continued to climb strongly in April. Meanwhile, the IHS Markit/CIPS UK Composite Purchasing Managers’ Index rose to 60.0 in April (flash reading), from a final reading of 56.4 in March and its highest level since November 2013.

Japan

The Japanese equity market declined 2.8% in April, although all this move occurred in just two days when investors saw a greater chance that Japan may re-impose restrictions on activity. The yen initially moved sharply stronger against major currencies before retracing about half of the move before month-end.

Although the rate of Covid infections in Japan remains markedly below most other countries, the persistent increase in cases continues to cause concern among the population and has heightened criticism of the government’s response. In addition, the much-anticipated acceleration in Japan’s vaccination programme has so far failed to materialise.

These concerns culminated in the re-imposition of a state of emergency covering Tokyo and three other prefectures from 25 April, just weeks after the previous restrictions were lifted. The current restrictions are planned for only 17 days, which could clearly be extended but the political timing becomes very complicated ahead of the Olympics.

Nevertheless, industrial production data remained solid over the last three months despite various states of emergency being in place for most of the period. The corporate results season began just before the end of April. Only minority of companies had therefore reported in April, but these numbers so far look good against consensus expectations, as they did in the previous quarter.

Asia (ex Japan)

Asia ex Japan equities recorded a modest gain in April as the rollout of Covid-19 vaccines in many parts of the world boosted optimism for a return to economic normality. Taiwan was the strongest index market and outperformed, led by strong gains by non-technology stocks. Resources, industrials, consumer discretionary and financials all outperformed after the US did not name Taiwan as a currency manipulator. Malaysia, Singapore and Hong Kong also achieved modest gains during the month. Conversely, Pakistan was the weakest index market during April. Thailand and India were also weaker during the month.

China achieved a modest gain during the month following two consecutive monthly declines as solid 2020/21 earnings, a temporary weakening of the US dollar and less stretched valuations buoyed market sentiment. Healthcare, materials and staples led the Chinese market while real estate, utilities and financials underperformed during the month. In India, increasing cases of Covid-19 weakened market sentiment as the number of new infections and deaths surged during the month. Healthcare and materials outperformed while consumer staples and consumer discretionary lagged. Mid-caps and small caps outperformed large caps in April. Indonesia and the Philippines both recorded a modest decline over the month, while Korean equities achieved a positive performance in April. 

Emerging markets

Emerging market (EM) equities recorded a gain in April aided by dollar weakness but underperformed developed markets. Covid-19 continues to be a concern in several EM, with India suffering a notable surge in cases during the month, while the pace of vaccinations in many EM remains slow.

Poland was the best-performing market in the MSCI EM index as the government began to ease lockdown restrictions late in the month. Taiwan, Argentina, and Greece, where the government announced plans to open up its tourism industry in May, all outperformed the index. Brazil also finished ahead of the index, supported by higher commodity prices and currency strength.

Political uncertainty in all three Andean countries contributed to their underperformance in April, with Chile the weakest market, followed by Colombia and Peru. Pakistan and Thailand also recorded negative returns and underperformed the index. In Thailand, a rise in Covid cases raised doubts about the timing of the economic recovery, particularly in tourism.

Global Bonds 

The sharp sell-off in US government bonds came to a halt in April, helped by comments from the Federal Reserve (Fed). European yields rose (i.e. prices fell), continuing to diverge from the US, due to rising growth and inflation expectations. With continued optimism over the economic recovery, corporate and emerging market bonds performed well and the US dollar weakened.

The US 10-year Treasury yield declined by 11 basis points (bps) to 1.63% for the month. Echoing the previous month’s comments, the Fed acknowledged improvements in the economy and a better outlook, but clearly downplayed any prospect of removing policy support. The US economy grew at an annualised 6.4% in Q1, beating expectations.

In Europe, the German 10-year yield rose by 9bps to -0.20%. In the “periphery”, Italy’s 10-year yield increased by 24bps to 0.90% and Spain’s by 14bps to 0.47%. European yields had shown a degree of resilience to the global sell-off in yields in recent months. In April, expectations for growth and inflation picked up. Inflation in Germany rose above 2% for the first time in five years, although this was due to higher energy prices compared to a year ago. The UK’s 10-year yield was unchanged at 0.84%.

Corporate bonds produced positive returns and outperformed government bonds. US credit led the way, with investment grade slightly ahead of high yield, supported by falling yields. European investment grade was flat, but ahead of government bonds, while high yield made positive returns.  

Emerging market (EM) bonds gained, led by local currency, as the US dollar weakened. EM hard currency debt performed well, with high yield bonds gaining over 3.5%. EM corporate bonds made more moderate positive returns.

The Refinitiv Global Focus index, which measures balanced convertible bonds, advanced 1.3%. Valuation for convertible bonds cheapened slightly, especially for some US technology and growth companies.

Commodities

In commodities, the S&P GSCI Index made a modestly positive return. Agriculture was the best-performing component with strong gains recorded for corn and wheat. Sugar and coffee also achieved robust gains. The industrial metals component also performed well, led by gains for copper and nickel. Energy was lifted by gains for natural gas and oil. Precious metals were modestly higher, with small gains for both gold and silver. Livestock fell, led lower by sharp declines in feeder cattle and live cattle. The precious metals component was lower, with sharp declines recorded by both silver and gold.


The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Monthly Markets Review – February 2021

A look back at markets in February when optimism over vaccination programmes helped spur gains for shares and commodities.


  • Global equities gained in February, with lowly-valued parts of the market faring well. Vaccine optimism ultimately trumped fears that a stronger-than-expected economic rebound could alter the trajectory of monetary policy.
  • Government bonds saw a sharp sell-off in late February. Corporate bonds outperformed government bonds in the month.
  • Commodities gained with energy the best-performing index component as crude oil prices continued to rise.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

US

US equities survived a bout of turbulence to post gains in February. Fears that a rapid economic recovery would hasten policy tightening rattled bond markets before rippling into  equities, especially tech. As the fears receded, markets recovered. Sectors that are most sensitive to the economic cycle – such as energy, financials, and industrials – performed strongly. More traditionally defensive sectors, such as utilities and consumer staples, lagged.

Eurozone

Eurozone equities gained in February, supported by a strong advance for lowly-valued parts of the market such as banks. The energy sector also posted robust gains. Defensive sectors such as utilities and real estate were among the laggards. Eurozone annual inflation was confirmed at 0.9% for January and GDP was down by 0.6% in Q4 2020. The Italian parliament approved the formation of a new government to be led by former European Central Bank chairman Mario Draghi.

UK

UK equities also performed well, further reversing some of the underperformance suffered during the global pandemic’s initial stages. The market responded well to progress on vaccinations. Lowly valued and domestically focused areas outperformed.

Japan

Japanese equities rose sharply in early February, before giving up some of the gains. There was some rotation out of growth-style stocks and the market was led by lower quality factors (lower quality stocks tend to have more volatile earnings, weaker balance sheets and lower profit margins). Smaller companies underperformed. The Covid-related state of emergency should be lifted in early March and the vaccine roll-out is underway following the first regulatory approvals, which were granted in mid-February. Recent strong corporate results have led to upward revisions to estimates and increased expectations for a full corporate earnings recovery.

Asia (ex Japan)

Asia ex Japan equities achieved a modest gain in February. Progress on the global roll-out of Covid-19 vaccines, and the prospect of US fiscal stimulus, boosted investor optimism. However, expectations for higher inflation prompted a sell-off towards the end of the month. India was the best-performing index market as the Union Budget announcement boosted sentiment. Hong Kong and Taiwan, where strong performance from IT stocks supported gains, both finished ahead of the index. Conversely, Pakistan was the weakest index market. China also finished in negative territory, amid weakness from internet stocks.   

Emerging markets

Emerging market (EM) equities recorded small gains. Early progress was driven by vaccine optimism and expectations for US fiscal stimulus, but were partly offset by concerns over stronger growth and higher inflation. A stronger dollar was also a headwind for EM. Argentina was the best-performing market in the EM index. Chile and Peru, aided by commodity price strength, and Greece, where hopes for a recovery in tourism picked up, all outperformed. Brazil was the weakest index market, negatively impacted by policy concerns. China also finished in negative territory and underperformed the index, with weakness from internet and IT stocks dragging on performance.

Global Bonds 

In fixed income, government bonds saw a sharp sell-off in late February, with corporate bonds outperforming. Having risen steadily on expectations of substantial US fiscal stimulus, government yields lurched higher late in the month (meaning prices fell), as a US Treasury bond auction saw muted demand. The US 10-year Treasury yield rose 36 basis points (bps) to 1.43%. Italian government bonds outperformed German, as investors welcomed the appointment of Mario Draghi as prime minister. The UK 10-year yield increased by 49bps to 0.82%, reflecting optimism around the UK’s fast vaccine roll-out and plans for easing lockdown.

Corporate bonds outperformed government bonds. Investment grade produced negative total returns amid the global sell-off in yields, but high yield delivered gains. Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade. Emerging market (EM) bonds declined overall. EM corporate bonds registered a relatively small decline, outperforming EM sovereigns, and EM high yield produced positive returns. EM currencies weakened in the final week of the month as US Treasury yields rose.

The Refinitiv Global Focus index, which measures balanced convertible bonds, advanced 3.1% compared to the MSCI World equity index’s gain of 2.6%. Given the demand for convertibles, valuations rose and the overall asset class is now slightly expensive. At the same time, the weaker technology sector resulted in US convertibles giving up some of their previous high valuations. 

Commodities

In commodities, the S&P GSCI posted a robust return as the continued roll-out of Covid-19 vaccinations supported the outlook for a strong recovery in global growth. Energy was the best-performing index component as crude oil prices continued to pick up. The industrial metals component performed well, led by strong gains for copper, often viewed as bellwether for the global economy, and aluminium. The agriculture component achieved a modest gain in the month, boosted by higher coffee, sugar and cotton prices. The livestock component posted a moderate return, with a strong gain for live hogs. By contrast, the precious metals component registered a negative return in the month, with both gold and silver weaker.


The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Monthly Markets Review – January 2021

An overview of markets in January when emerging market equities outperformed their developed market peers.


  • January saw divergent performance for shares, with developed market equities ending the month lower while emerging market equities posted positive returns.
  • The month saw volatility from abnormal and targeted trading, along with concerns over the pace of vaccine roll-outs.
  • Government bond yields generally rose (meaning prices fell). In the US, the Democrats secured control of Congress to raise expectations of more fiscal stimulus.
  • Commodities gained with energy the best-performing index component as Saudi Arabia unexpectedly announced a unilateral cut in output.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

US

US equities declined. Unusual and highly targeted trading from a cohort of retail investors contributed to a rise in market volatility, dampening risk appetite that had pushed the S&P500 to a new high.

The volatility overshadowed optimism earlier in the month, stemming from an anticipated fiscal stimulus boost following President Biden’s inauguration. The Federal Reserve said the pace of the US economic recovery had weakened. Consumer staples and industrials were amongst the weaker market areas, while energy and healthcare were more resilient.

Eurozone

Eurozone shares fell in January. A relatively slow roll-out of Covid-19 vaccines dominated the headlines. Also denting sentiment was political turbulence in Italy that led to the resignation of Prime Minister Conte. The European Commission’s consumer confidence survey fell by 1.7 points compared to December. Data showed the German economy grew by 0.1% in Q4 2020, while French GDP shrank 1.3%.

The healthcare and IT sectors posted positive returns. The weakest sectors were real estate and consumer staples.

UK

In the UK, the FTSE All-Share index posted negative returns in January amid weakness in the financials, industrials and consumer goods sectors. Other sectors saw gains, with oil & gas and basic materials among the best performers.

The roll-out of vaccines picked up speed but lockdown restrictions weighed on economic activity. The composite purchasing managers’ index, a measure of service and manufacturing sector activity, fell to 40.6 in January from 50.4 in December (a reading below 50 indicates contraction).

Japan

Japanese equities traded higher in the first half of January, helped by positive statements from the US Federal Reserve, before falling at the very end of the month to leave a total return of just 0.2%. Having strengthened against the US dollar for most of 2020, the yen ended January slightly weaker. Small caps underperformed again in January, having been particularly weak in the first half of the month.

The Japanese economy has dipped back into deflation, although this is currently due to a series of temporary factors, including lower utility prices and mobile phone charges.

Asia (ex Japan)

Asia ex Japan equities registered a strong gain as the global roll-out of Covid-19 vaccines and expectations for additional US fiscal stimulus boosted investor optimism. However, concerns over a delayed exit from the pandemic contributed to a sharp sell-off at the end of the month.

China, where domestic economic data remained firm, and Taiwan, which benefited from strong performance in technology names, led the index higher. Hong Kong, Singapore and South Korea ended the month in higher but underperformed the Asia ex Japan index.

Emerging markets

Emerging market equities recorded a positive return as investors anticipated a return to social normality and economic recovery. This was despite a sell-off towards month end on concerns of a Covid-19 resurgence. The UAE and Egypt were the best performing markets in the index.

China outperformed the index, aided by strong performance from e-commerce and internet stocks. Brazil lagged with currency weakness dragging on returns. Protests held during the month called for President Bolsonaro’s impeachment, amid dissatisfaction over the response to Covid-19. India also finished in negative territory. 

Global Bonds 

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. The US 10-year yield increased by 18 basis points (bps) to 1.09% over the month. The UK 10-year yield trod a similar path, rising just over 13bps, to 0.33%. In Europe, yields rose early on too, but were balanced by perceived hawkishness from the European Central Bank (ECB) and rising political risk in Italy. The German 10-year finishing 5.5bps higher at -0.52%.

For corporate bonds, investment grade credit saw negative total returns. Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade. US credit outperformed US Treasuries, while the euro and sterling markets were in line with government bonds. Global high yield credit markets made moderate positive returns, mainly due to income. Hard currency emerging market (EM) debt weakened 1%, while EM corporate and local currency debt was marginally lower.

After a positive start to the year, global stock markets shed their gains and posted a loss for the month. Convertible bonds played to their advantages and participated in the strong first three weeks of trading, then protected well on the downside. The Refinitiv Global Focus index, which measures balanced convertible bonds, advanced 0.3%. With strong demand for the asset class, convertible valuations became more expensive, especially in the US.

Commodities

In commodities, the S&P GSCI Index posted a strong return as the ramp-up of vaccination programmes in a number of countries boosted hopes of a return to economic normality in 2021. This was in spite of concerns later in the month over a delay to the recovery.

Energy was the best-performing index component as spot crude oil prices picked up. Although OPEC+ modestly increased production in January, Saudi Arabia unexpectedly announced a unilateral cut in output. (OPEC+ is the Organisation of the Petroleum Exporting Countries, plus Russia and nine other oil producing countries). The agriculture component also recorded a solid return. The industrial metals component achieved a small gain; nickel rallied but zinc was firmly down. By contrast, the precious metals component registered a negative return, amid a weaker gold price.


The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

Quarterly Markets Review – December 2020

A look back at the final quarter of 2020 when positive news on Covid-19 vaccines helped shares make gains.


  • Global equities gained in Q4 as a number of vaccine breakthroughs fostered hopes of a return to economic normality. 
  • Government bond performance was mixed, with US yields rising (meaning prices fell). Corporate bonds gained ground.
  • Commodities gained on vaccine news and a weaker US dollar.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

US

US equities gained over the quarter, with November especially strong due to the vaccine news. The developments eclipsed Joe Biden’s win in the US presidential election, as well as a $900 billion stimulus package announced in late December. The Federal Reserve nonetheless reinforced its supportive message, stating it will continue with current levels of quantitative easing. Economically sensitive sectors made the strongest gains, with more defensive sectors making more modest progress.

Eurozone

European equities gained sharply in Q4, again on the news of effective vaccines. Sectors that had previously suffered most severely from the pandemic, such as energy and financials, were the top gainers. However, rising Covid infections saw many European countries tighten restrictions. EU leaders approved the landmark €1.8 trillion budget package, including the €750 billion recovery fund, after overcoming opposition from Hungary and Poland. The EU agreed a Brexit trade deal with the UK.

UK

UK equities performed well over the quarter reversing some of the underperformance that they suffered versus other regions during the global pandemic’s initial stages. The market responded well to November’s vaccine news and then again to the Brexit trade deal, with domestically-focused areas of the market outperforming.

Asia (ex Japan)

The MSCI Asia ex Japan Index rallied strongly. South Korea was the best-performing index market, aided by strong gains from the tech sector. Indonesia, Taiwan, the Philippines and India also finished ahead of the index. Malaysia, China and Hong Kong generated more modest gains and underperformed. In China, tensions with the US, and anti-trust moves weighed on sentiment somewhat.   

Japan

Japanese equities rallied in the quarter, driven from early November by vaccine-related news and the US presidential election result. The style reversal seen in most markets has not yet materialised in Japan, with only a brief outperformance for value stocks, while small caps underperformed sharply in the quarter. The focus now is on the vaccine roll out, Japan’s general election timetable and the timing of a full corporate earnings recovery.

Emerging markets

Emerging market (EM) equities generated their strongest quarterly return in over a decade, with US dollar weakness amplifying gains. Korea, Brazil and Mexico all outperformed. The rally in commodity prices was supportive of EM net exporters. Conversely, Egypt, where daily new Covid-19 cases accelerated, posted a negative return. China finished in positive territory but also lagged. The launch of an anti-trust investigation into Alibaba and further escalation in US-China tensions dragged on sentiment.

Global Bonds 

Government bond yields diverged markedly. The US 10-year yield was 25 basis points (bps) higher, finishing at 0.91%, while the German 10-year yield fell by 5bps to -0.57%. Italian and Spanish 10-year yields saw significant declines of 32 and 20bps respectively, as the European Central Bank increased quantitative easing. The UK 10-year yield was little changed at 0.20%, as vaccine optimism was tempered by Brexit uncertainty and new lockdown measures.

Corporate bonds enjoyed a fruitful quarter, outpacing government bonds, with both investment grade and high yield delivering strong positive total returns. Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade.

Convertible bonds gained 10.7%, benefiting from the tailwind of global stocks at record highs. This implies a strong 73% participation in the equity market gains in Q4. The primary market for convertibles has also reached highs not seen for the last ten years. All in all, $166 billion of new convertible bonds were issued in 2020. Valuations, especially in the US, have become more expensive, albeit from a lowly valued base.

Commodities

In commodities, the S&P GSCI Index registered a robust return in Q4. Vaccine news lifted hopes for a global economic recovery in 2021. US dollar weakness was also beneficial. Agriculture was the best-performing index component, driven higher by strong performance from soybeans and corn. The energy component also posted a positive return. Crude oil prices rallied as a stronger demand outlook offset concerns over increased supply. Industrial metals also gained, driven higher by copper and nickel. Precious metals were mixed, with silver generating a robust gain while the gold price fell. 


The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.