In focus

Quarterly markets review - Q1 2021

  • Global equities advanced in Q1, supported by the roll-out of Covid-19 vaccines and news of further US fiscal stimulus. Lowly-valued parts of the market fared well, as did smaller companies.
  • Government bond yields rose (meaning prices fell). Corporate bonds outperformed government bonds.
  • Commodities gained with the energy component boosted by stronger demand.  

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 equities gained in Q1, despite starting uncertainly. Unusual, highly targeted trading activity saw markets rattled in January, before recovering as optimism over significant government stimulus took root.

President Biden first confirmed a fiscal stimulus package of $1.9 trillion, which was followed up with an additional promise of $2 trillion in infrastructure spending. Energy, financials and industrials made strong gains. Technology and consumer staples lagged.


European equities advanced in Q1. Hopes of global economic recovery supported sectors that fared poorly in 2020, such as energy and financials. Consumer discretionary stocks also performed well, notably car makers as Volkswagen announced ambitious electric vehicle targets. Underperformers were defensive areas that are less tied into the economic recovery, such as utilities and real estate.

The flash manufacturing purchasing manager’s index (PMI) for March reached a record high of 62.4, signalling strong growth. However, rising Covid infection rates in some countries, and new lockdown curbs, cast doubt on the prospects for services, notably tourism. (The PMI indices, produced by IHS Markit, are based on survey data from companies in the manufacturing and services sectors. A reading above 50 signals expansion).         


UK equities performed well. Lowly-valued, economically-sensitive areas of the market extended the recovery seen since November. This was reflected in a very strong performance from materials, energy and financials. Banks performed particularly well amid better-than-expected results and a sharp increase in bond yields as the global economic outlook improved.

A number of domestically focused areas of the market also outperformed as the forward-looking data for the UK economy improved. The IHS Markit/CIPS composite PMI rose in March to 56.6 (flash reading). This signified the fastest rate of economic expansion for seven months ahead of the easing lockdown measures towards the period end.


Japanese equities continued to rally as visibility on the corporate profit recovery improved after a strong set of quarterly results. Sentiment was also helped by the consistent weakness of the yen against the US dollar. The market was led by cyclical sectors and lower quality value style stocks, partly in response to early indications of changes in global interest rates and inflation expectations.

There is now an increasing likelihood of the Tokyo Olympics being held, although the government confirmed that international spectators will not be allowed to attend.

Asia (ex Japan)

The MSCI Asia ex Japan Index recorded a positive return amid continued investor optimism for a return to economic normality. However, sentiment weakened towards the end of the quarter as slower vaccination rollouts led to the reintroduction of lockdown restrictions in some countries. The best performing markets in the index were Taiwan, where strong performance from IT names supported gains, and Singapore, where banks underpinned returns.

The Philippines was the weakest index market. A sharp rise in daily new cases of coronavirus resulted in tighter restrictions, weighing on the outlook for the services-oriented economy. In China, expectations for policy normalisation, regulatory uncertainty for certain industries, and ongoing geopolitical concerns dampened sentiment.

Emerging markets

Emerging market equities (EM) registered a positive return in Q1. This was despite weakness later in the quarter as EM vaccine programmes lagged developed markets. A pick-up in daily new cases of Covid-19 led to renewed activity restrictions in some countries. Meanwhile, a marked increase in US Treasury bond yields pressured higher growth areas of the equity markets and accompanying US dollar strength was also a headwind for EM.

Chile, aided by copper price strength, and a strong start to vaccine roll-out, was the best-performing index market. Turkey, where the central bank governor was unexpectedly replaced, recorded a sharp fall and was the weakest index market. Brazil and China also finished in negative territory.   

Global bonds

Bond yields rose markedly in Q1 amid swift continued rollout of Covid-19 vaccinations, particularly in the US and UK, and expectations of a large US economic stimulus. It was the second worst quarter since 1980 for US Treasuries, with other markets also seeing large moves.

The 10-year US Treasury yield rose from 0.91% to 1.74%, while the 2-year yield rose only modestly. As such, the yield curve steepened, indicating rising growth expectations. The UK 10-year yield increased by 65 basis points (bps) to 0.88%.

In Europe, where the vaccination programme is some way behind the US and UK, the German 10-year yield increased from -0.57% to -0.33%. Italy’s 10-year yield rose from 0.52% to 0.63%, which reflected some political uncertainty. Spain’s rose from 0.06% to 0.34%.

Corporate bonds outperformed government bonds. Investment grade made negative total returns, the US dollar market particularly, as yields rose. High yield produced moderate positive returns amid healthy risk appetite and rising growth expectations. 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, with a bias towards growth and IT companies, did not participate significantly in equity market gains. The balanced Refinitiv Global Focus index showed a steady gain of 0.8% (in US dollars) for the quarter. The primary market remained very active with a volume of more than $60 billion of inflows coming to the market. Valuations cheapened, partly driven by lower demand for US convertibles.


In commodities, the S&P GSCI Index rallied strongly in Q1 as the global roll-out of Covid-19 vaccines continued to spur investor optimism for economic recovery. This was in spite of a stronger US dollar.

Energy was the best-performing index component, driven by strong performances from unleaded gasoline and Brent crude on the back of higher demand and continued controls on supply. Industrial metals also recorded a robust return, led by strong gains for aluminium and copper. The agricultural sector achieved a positive performance, with robust gains for corn and soybeans.

The precious metals component was lower, with sharp declines recorded by both silver and gold.