Market Monitor – Dec 2020

January 8th, 2021, by Chris Davis

Markets continued their positive momentum during December completing a strong fourth quarter and recovery from the depths of the crisis in March this year. The MSCI World index grew 3.5% over the month, with strong returns from Asia, Small cap stocks and the Energy and Mining sectors. It was notable, however, that there were differing drivers of market returns across regions.

Strength in Asia occurred across the region, with Korean (+14.4%), Taiwanese (8.9%) and Indian (8.7%) indices performing the best. The MSCI Asia Pacific ex Japan index increased 5.3% over the month contributing to the quarter 4 return of 15.7%. Asia appears to be avoiding the worst scarring of the Coronavirus experienced in the US and Europe. Taiwan for example has had only 797 cases and 7 deaths due to coronavirus and therefore has avoided any lockdowns.

Emerging markets have also had a good month, with the MSCI Emerging Markets index generating 6.1% over the month. Countries like Brazil (9.6%), Russia (6.9%) and Mexico (5.4%) have been assisted by the expectations of global growth in 2021 and the consequent rise in the Commodity prices. Brent Crude spot price rose 8.4% in December to over $50 (per barrel) and a 20% gain over the past 3 months. Industrial metals have rebounded strongly with Gold rising 6% in December resulting in a 21% gain over the year.

The S&P500 rose 3.8% over the month, with the top contributors coming from Financial (6.2%), Information Technology (5.7%) and Energy (4.4%) sectors. The performance of the Information Technology sector has had a remarkable year growing 43.4% in 2020 pushing valuations skywards. The immediate focus is now on the two election runoffs in Georgia for the Senate seats. The Senate currently stands at 50 Republicans and 48 Democrats. If Democrats win both runoffs, the party will have control of the chamber because Vice President-elect Kamala Harris would break any ties. But if Republicans win one of the two races, they will maintain control. If Democrats gain control of the Senate it could signal increased regulation the Information Technology (and other) sectors, which will challenge the lofty valuations for investors.

In the UK, the Mining sector (11.4%) led the FTSE All Share to a 3.9% return and the FTSE 100 to a 3.3% return over the month. Tobacco (6%), Industrials (5.8%) and Financial (5%) sectors also provided strong returns over the period.
This strong performance occurred even though Sterling/US Dollar strengthened by a further 2.5% following the 3% gain in November finishing the month at 1.367 (£/US Dollar). Pragmatism eventually prevailed between UK and EU and a trade deal was agreed on 24 December. This led to the more domestically focussed smaller and mid-sized companies rallying into year end. FTSE AIM All Share (10.2% over the month) rose 6% from the 21 December to month end and FTSE 250 (excl. Investment Trusts) (6.5% over the month) rose 4% over the same period.

As with the UK, Miners (18%) and Industrial (5.7%) sectors performed well in Europe and the Travel and Leisure sector (8.6%) continued its recovery despite the concerns over extended lockdowns and travel restrictions. The MSCI Europe ex UK index rose 2% in December, resulting in a 1.4% return for the calendar year.

Chris Davis,
Chief Investment Officer

Read the full Market Monitor here…