In focus

Monthly markets review - January 2021


  • January saw divergent performance for shares, with developed markets 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.


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 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.


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.

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.


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.

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 index markets. China outperformed, 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 and underperformed.

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.


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.


Total returns (net) % – to end January 2021


Source: Thomson Reuters DataStream.
Local currency returns in January 2021: *0.2%, **-0.3%.

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