Market Commentary January 2021
UK shares remain dull despite EU trade agreement
The EU trade agreement and the rapid roll-out of Covid-19 vaccines should have been enough to see UK equities higher during the first month of the new year. Investors have been willing, for some time, to look through the pandemic to the recovery expected in 2021. However, after a seemingly bright start to the year, with the major UK indices showing gains of over 5% in the first week, confidence began to waver. Increasing case numbers, and the evolving expectation of lockdown restrictions lasting well into the vaccination programme took their toll on the UK and Europe.
Reddit investors drive volatility in US market
In the US, Reddit users on the WallStreetBets message board took positions in Gamestop and other companies that were being short-sold by US hedge funds. The hedge funds had been betting against the companies, but a combination of new buyers and then hedge funds trying to close their lossmaking short positions, drove the shares to phenomenal gains. Gamestop shares rose from $20 to a closing peak of more than $347. Hedge funds, lost billions of dollars, and share dealing services, most notable Robinhood, imposed restriction on trading in some stocks, leaving that company facing multiple lawsuits and possible bankruptcy.
Asian equities continue to return gains
The economies of Japan and the wider Asian region once again distinguished themselves from western markets in their resilience in the face of the ongoing pandemic. Investors continued to favour the region, which has recovered strongly from the virus and is leading the world back to normality. A combination of more authoritarian political regimes, public compliance with restrictions and the geography of the region (many islands) have all worked to help Asia out of the crisis ahead of other parts of the world.
Emerging markets lead performances so far in 2021
With global recovery, a return to growth and the return of inflation the common themes in many commentators 2021 forecasts, emerging markets were the unsurprising leaders in January. Perhaps more surprising was that leadership among the emerging markets came from Europe and Africa, rather than Asia, which had been a strong driver of the asset class for some time.