It was an interesting end to 2020 and the start to 2021. This month’s market commentary looks back at a few December highlights and more recent events that have transpired along with some of the key considerations.
Brexit Trade Agreement drives UK shares and Sterling higher
The announcement, on Christmas Eve, of a trade agreement between the UK and the EU, to come into force on 1st January, helped UK shares generally to end the year on a positive note. Most of the positive market reaction came in the days leading up to the announcement; the markets tapered off in the thin trading environment between Christmas and the New Year. Whilst the mid-cap and smaller companies indices rose by c.6.5% over the month, the FTSE 100 rose by only 3.1%. A strong rise in Sterling in the run-up to the trade deal announcement saw many of the FTSE 100 companies, which receive around two thirds of their revenues in foreign currencies, being marked down as the discounted cash flow valuations of their shares fell.
US sentiment improves following Biden victory
With the US election over, and a decisive result achieved, notwithstanding the objections of the incumbent president, the US market found its feet once again, and equities showed a strong gain once more in December. The technology sector, which had driven much of the rise in Q2 and Q3, but had fallen prey to profit-taking ahead of the election, moved ahead in December, with the NASDAQ 100 gaining 5.1%.
Asian equities and yen remain robust
Global investors continued to be net buyers of Asian and particularly Japanese stocks during December. Both the yen and the Japanese and other Asian stock markets were seen as a hedge against western economies where Covid-19 was seen clearly taking hold again. Asia as a whole has had a much more benign experience with the virus. Consumer electronics companies with commoditised online offerings were a particular feature. The Korean tech giant, Samsung, saw its shares rise by more than 20%, whilst Sony benefited from the launch of its new PS5 console, and Nintendo also saw strong sales and empty shelves over the holiday period.
European markets welcome trade agreement, but Covid fears remain
European stock markets mostly gained in December, though the rises were more muted than in the UK. Whilst the trade deal is seen to benefit both sides, the more pressing problem of the 2nd wave of Covid-19, and its variant strains was more prominent in investors’ minds. Widespread coverage in the media of Italian hospitals overrun by Covid-19, Germany entering another nationwide lockdown and France closing its borders to truck drivers without a negative Covid test certification all weighed on sentiment.
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Jennifer Turner
