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January 6, 2021
  • 2020: Market overview of the Year of Covid
  • US shows patches of recovery

With 2020 at a close, it’s now possible to take stock of the overall market performance during a year that many of us would much rather forget. The COVID-19 pandemic, of course, played the biggest role in shaping market performance, creating a tumultuous start in the first quarter. However, despite the wider negative impact, some stock indices advanced substantially over the past 12 months.

The Nasdaq, for example, saw major gains amidst a frenzy in tech stocks this year, while the Swiss exchange registered a positive return of just under 1%. The Istanbul stock exchange climbed 30% over the last year, although in dollar terms this registered a more modest rise of 3.4%. These exchanges stand in marked contrast to the European indices, whose relative underperformance might be explained by the continent suffering the effects of large epidemics and, as a consequence, harsher lockdown measures.

Two notable success stories for the year were global convertible bonds and global green bonds, with the former climbing 38.78% and the latter a respectable 12.74%.  Market enthusiasm has continued to grow over green bonds as investors increasingly prioritize environmental factors to guard against long-term risk associated with climate change.

In terms of alternative investments, the convertible arbitrage strategies outperformed the rest of the market by some way, while hedge funds only posted modest gains.

Across 2020, silver was the leading commodity, outperforming soybeans, copper, and, surprisingly, gold. Predictably, oil was one of the worst performing commodities, hit hard by the pandemic and the ensuing disruption to both demand and supply chains.

Finally, in currencies we saw the euro appreciate 10% against the dollar, and the rupee and lira lose ground against the dollar, although the lira did improve after the Turkish central bank hiked up rates at the end of December.

Performances for 2021 across the market will no doubt continue to be shaped by the pandemic, with the key new factor now being the effectiveness and rollout of the various vaccines around the world.

While digital currencies remain only a small share of the world’s investments, the scarcity of the most popular cryptocurrency, Bitcoin, is seen as an advantage by its advocates. From the outset, Bitcoin’s supply was set at 21m, with 18.6m mined to date. Bitcoin’s value recently climbed as high as USD 35,841 on 6th January 2021, with a total value outstanding of USD 647bn compared to the USD 217trn world equity and bond markets. Still only a drop in the water, therefore, but a small shift away from traditional asset classes has magnified the impact on Bitcoin.

China’s recovery stable with some positive trade signs developing

Over December, China’s Purchasing Managers’ Index declined slightly to 51.9 from 52.1 in November. Current survey data overstate the real output since the pandemic began and estimate that in the fourth quarter of 2020 GDP grew 5% YoY, up from 3.9% in the previous quarter. Suppliers’ delivery time also lengthened for the first time since March, implying some renewed logistical problems. However, new orders, both domestic and foreign, were unchanged in December, offering optimism for global trade. Though price pressure continues to build in line with an uptick in commodity price inventory building is up, too, thus keeping inflationary pressures in check short term.

US shows patches of recovery while unemployment trends upwards

The US is showing slight signs of recovery in certain sectors of the economy. Jobless claims unexpectedly dipped in the last week of December, but the 12-week average rose and that trend is expected to continue in early 2021. Employment in small businesses has also softened since late October and is likely to show some rebound in January. However, activity in restaurants and airline businesses rebounded over the holiday period, and the ISM manufacturing index confirmed recovery in industrial activity. Meanwhile, despite the rebound in the housing market stalling, with pending homes sales dropping 2.6% in November for the third straight month, construction activity continues unabated.

  • 15 Jan: US retail figures for December will show whether household savings in 2020 generated a Christmas bounce, or if Covid infections continue to weigh down consumer spending.
  • 17 Jan: China’s GDP figures for the final quarter of 2020 are expected to show the recovery continuing to gather pace, with a V-shaped recovery for the year all but guaranteed.

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