Mondial Chart of the Week: A Year Like No Other! 📈

31 January 2021


Source: Bloomberg & Momentum Global Investment Management

What this chart shows

For our first chart of 2021, we thought we would look back at an extraordinary 2020. The chart shows the performance (total returns in US dollars) of several major asset classes from 31st December 2019 to 31st December 2020. The strongest performing asset over the year was gold, boosted by elevated uncertainty, rising inflation expectations (after the March collapse) and the resultant fall in real yields.

The weakest performer over the year was oil, impacted by both demand and supply issues, though the recovery from the March lows was strong. Within equities, emerging markets (18.3%) outperformed developed markets (15.4%) boosted by index heavy weights in Asia who were perceived to handle the pandemic more successfully.

A weaker US dollar also helped. Within developed markets, the US (17.6%) outperformed, supported by a high weighting to technology, whilst the UK lagged (-6.2%). Vaccine developments have led to a rotation since November which has seen value names and sectors rally, bucking the trend that we witnessed for most of 2020.

Why this chart is relevant

What is perhaps most extraordinary is that all but one of the asset classes in our chart delivered a positive total return last year despite the pandemic’s devastating hit to economic fundamentals across most regions and sectors. It suggests investors have done their best to look through the short-term impact of the pandemic and ahead to recovery which should see earnings normalise (though some industries might find themselves permanently impaired).

A flood of liquidity provided by central banks and government stimulus was also key to the sharp rally. This does leave valuations in some parts of the equity market, chiefly the US and growth sectors, elevated today. Eyes have now turned towards potential tighter regulation in big technology names under Joe Biden’s administration.

This is something to watch closely and is certainly a risk to a sector on richer valuations. Opportunities exist elsewhere. Continued and successful rollout of vaccines should be positive for value stocks hit hardest by the pandemic, in which case the trend witnessed since vaccines were announced in November should continue. This will likely be positive for a UK market heavily weighted to cyclical sectors, which now also has benefit of the key Brexit deal headwind in its rear-view mirror.

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