January was a month of two halves. Investors began the decade in good spirits, with America’s stock market hitting record highs. By the middle of the month, reports of a novel coronavirus from a fish market in central China sent a chill through sentiment, which then escalated into a mini panic. Markets recovered towards the end of the month.
Britain’s economy continued to enjoy a “Boris bounce” in the New Year, with economic data pointing to a rebound in business activity and a surge in London house prices. The feel-good factor faded towards the middle of the month, as the emergence of the Chinese coronavirus wiped billions off world stock markets, including the FTSE. Our Gresham House Micro Cap fund bucked the trend and ended the month up almost 4%.
Britain left the EU at 11pm on the last day of the month. There is still much haggling over trade deals to be done, but Westminster can now turn its attention to other areas; the Conservatives are promising an “end to austerity” which should provide a boost to the economy through infrastructure spending over the next few years.
Washington has been gripped by the impeachment proceedings against President Trump. While the spectacle has been great television, the Republican-controlled Senate was never likely to remove Trump from office. Investors welcomed the announcement of a preliminary US-China trade deal, which avoids most tariffs and opens Chinese markets to American companies. The deal helped Wall Street begin the decade in a euphoric mood, setting record highs almost every day, but the rally came to a halt as news of the coronavirus spread.
Towards the end of the month, many large American companies – including Apple, Microsoft, Coca-Cola, and Mastercard – reported bumper quarterly profit numbers. Our US tracker fund has proportionate allocations to all those companies.
Emerging markets bore the brunt of the panic over the emergence of a novel coronavirus from a fish market in Wuhan, central China. The data suggests that the outbreak is more contagious than SARS was, but less deadly. China reacted with speed; closing roads, airports, and railways, quarantining tens of millions of people, and building a new hospital in a few days. The virus will likely put a dent in Chinese GDP numbers, but the long-term impact should be limited. We used the opportunity to increase our exposure to emerging markets at better prices than before.
The new president of the European Central Bank, Christine Lagarde, launched a year-long “strategy review” which calls into question what the central bank’s role is. Since 2003 the ECB’s mandate has been to achieve inflation just below 2%, but Lagarde wants to expand this into new areas like inequality, technology, and climate change. A stream of poor economic data painted a picture of a continent in poor shape. France’s economy shrank by 0.1% in the fourth quarter as strikes over President Macron’s pension reforms put a drag on activity. Italian GDP shrank by 0.3%, the country’s worst performance since 2013.
Japanese exports fell for the 13th straight month, hurt by weak demand from the US. Japan’s trade-reliant economy has been buffeted by President Trump’s trade wars, but the announcement of a preliminary US-China deal could mark the beginning of a turnaround. In more colourful news, the Brazilian-French ex-Nissan boss Carlos Ghosn managed to escape from Japanese house arrest and flee to Lebanon. In something more suited to an airport thriller than an economic update, he sneaked onto a bullet train and hid in an equipment case to board a private jet bound for Istanbul, where he then flew to Beirut.
The last month has demonstrated how quickly investor sentiment can swing. Markets often overreact to bad news, which creates opportunities to invest at lower prices than before. The investment committee has used the recent drop in emerging market assets to shift our allocation towards there, where we can benefit from future growth.
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