Insight

Monthly Market Roundup cov. January 2023

Monthly Market Roundup
Overview
1

Global equity markets enjoyed a strong start to the year with all regions landing in positive territory.

2

China’s faster-than-expected Covid reopening progress, plus hopes that the current interest rate hike cycle could soon come to an end improved investor sentiment.

3

Following a recent trend, emerging markets outperformed developed markets in January.

A positive start to the year for global stock markets

2023 started on a more positive note than 2022 ended with all major equity market regions advancing over the month of January. China’s Covid reopening progressed quicker than expected provided a boost as did hopes that the current cycle of interest rates hike might be coming to an end. Following a recent trend, emerging markets outperformed developed markets to kick off the year. 

European equities ended the month higher as the economy looked to benefit from easing inflation and the China reopening.

 

A better outlook for headline inflation was underscored by the first single digit reading in two months. Core inflation (which excludes food and energy prices) rose to a new high of 5.2% though.

 

Despite the inflation slowdown, the European Central Bank (ECB) is sticking to its regime of monetary policy tightening (raising interest rates). It raised interest rates by 0.5% to reach their highest level since 2008.

In the UK, the picture was also more positive for equities as markets ended the month up. The International Monetary Fund (IMF) still expects it to be the only leading economy not to avoid recession.

 

Inflation has slowed in the UK for the second month in row. Though still in double figures, it’s now down to 10.5% from its October peak. Lower petrol and clothing prices contributed to the drop.

 

Contrary to consensus estimates, the UK economy grew 0.1% in November, largely driven by telecoms and computer programming, as well as pubs and bars as people went out to watch the World Cup.

US markets enjoyed a strong start to the year, finishing January higher. This was thanks in part to improved investor sentiment supported by positive news flow.

 

The S&P 500 index had its best start to a year since 2019 driven by China reopening, inflation peaking and a brighter macroeconomic outlook. Technology stocks also rallied after a challenging 2022.

 

Some recessionary fears persisted though. The Institute for Supply Management (ISM) readings showed that in December services and manufacturing were both in contraction for the first time since May 2020. 

Asian equities rallied in January boosted by the faster-than-expected progress of China’s Covid reopening. Chinese equities themselves continued their strong run in January.

 

Taiwan and Korea were the top overall performers in the region. They were boosted by a rebounding tech sector which was in turn boosted by a softer-than-expected interest rate hike cycle from the US Federal Reserve.

 

In the Pacific region, Australian and Japanese markets advanced with the former seeing double-digit growth over the month. On the flip side, Indian equities retreated. Only the information technology and consumer discretionary sectors advanced.

Emerging market equities finished January up, following a trend of outperforming developed markets. They were positively impacted by China’s Covid reopening and a weakening US dollar.

 

In Asia, Taiwan and Korea led the way boosted by a rebounding technology sector, while India lost ground. In Europe, the Czech Republic was the strongest performer, followed by Greece and Hungary. Turkey, the UAE and Egypt all lagged.

 

Latin America was the strongest global performer with Mexico heading gains, followed by Chile and Peru. Brazil gained but underperformed the region as political noise weighed on investor sentiment.

After a difficult 2022, bond markets made a strong start to 2023, registering broad gains in January. Hopes that the current cycle of interest rate hikes may be nearing and provided a boost to US treasuries, UK gilt and German bunds.

 

There was also better news on the inflation front. US headline inflation slowed to its lowest for more than a year in December and eurozone annual inflation dropped by 0.7%.

 

In credit markets, sterling investment grade bonds led gains. Investment grade bonds denominated in other currencies also performed well. It was a better month for high yield bonds too.

Read the full roundup below

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    Monthly Market Roundup cov. January 2023

    By Invesco

    In our monthly market roundup for January, we look at what was a more positive start to the year for global stock markets and analyse which factors had the most impact.

Investment risks

  • The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. 

Important information

  • Data as of 31 January 2022 unless stated otherwise.

    Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.

    Past performance is not a guide to future returns.                           

    This document is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities.