What happened
The year started with supporters of Donald Trump storming the Capitol on January 6, while the presidential election results were being certified by lawmakers. On the same day the balance of power in the United States Senate also shifted narrowly to the Democrats. Surprisingly, financial markets were unperturbed by both events and share prices and bond yields rose on the day.
Joe Biden was inaugurated later in the month without disruption and proceeded to revert some of Trump’s policies shortly afterwards through a series of executive orders.
Meanwhile, both daily COVID cases and hospitalisations continued to reach new peaks as many parts of the world grappled with new and more infectious strains of the virus. Although this should have been a reason for concern, markets were sanguine amid the varied success of countries rolling out vaccinations.
Oil prices also moved higher, especially at the start of the month on the back of a pledge from Saudi Arabia to cut the output. Furthermore, economic data throughout January surprised on the upside. US jobless claims were lower than expected and China reported that their GDP growth rate had returned to prepandemic levels.
At the end of the month, financial news headlines were dominated by speculative activity in heavily shorted stocks such as GameStop. Although this confrontation between retail and hedge fund investors raised questions surrounding financial regulation, this was for the most part a sideshow for the US share market. However, it did coincide with market giving up gains made earlier in the month.
Looking back
Despite a relatively flat month, returns for shares over the last 3 months have been very strong. Performance for global shares remains “good” in comparison to history over a one-year period, outperforming the more concentrated New Zealand share market for the first time in a while.
The Australian share market has struggled to keep up with global peers over the last year. Larger exposure to cyclical sectors in the economy, such as materials and financial services, acted as a headwind as the market rebound led the economic rebound. Likewise, another cyclical sector, property, has lagged globally amid government-enforced lockdowns to combat the COVID-19 pandemic.
In New Zealand, bond yields ticked up slightly over the month as economic data continued to exceed expectations, dragging the 3-month performance of New Zealand fixed income further into the red. Similarly, bond yields rose in global fixed income markets, however the performance over the last 3 months has remained positive. Over a year, returns for fixed income now look more normal.
The New Zealand dollar closed relatively flat in January, ending the month mixed against other developed market currencies. Other the last year, however, the New Zealand dollar has appreciated against peers, with the notable exception being the cross rate with our closest neighbour, the Australian dollar.
Having performed well in the fourth quarter, Fletcher Building (FBU), continued its upward momentum over the month on the back of hopes for improved margins buoyed by an improving economy. Fisher and Paykel Healthcare (FPH), also squeezed out further gains in January after an update on its operating activity.
Similar to other “gentailers”, Contact Energy (CEN) lost ground in January, after having experienced a strong rally at the end of 2020. While the news that the aluminium smelter at Tiwai point would remain operational for the next 4 years spurred a relief rally earlier in the month, the stock ended up giving back these, as well as earlier gains, and ended in negative territory.
A2 Milk (ATM) continued its recent downward trajectory during the month, having now nearly halved from prices reached in mid-2020. Talks about export disruptions continued to hamper the performance of the stock in January.
Prepared by Makao Investments on behalf of Wealthpoint Limited
Disclaimer: The information in this document is provided for general information only and is not intended as advice. Past performance is not necessarily a good indicator of future returns. Data for this document has been sourced from Refinitiv Datastream, however the information contained herein is not guaranteed and does not purport to be comprehensive.
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