Global Market Overview

After a strong end to last year, January saw a reversal in risk appetite with the news of an escalation in tension between the US and Iran and then latterly a novel strain of a flu-like virus rapidly taking hold in China and at the time of writing responsible for over 1000 deaths. With China as the epicentre of the outbreak it is not surprising that Asia and Emerging Markets were the worst performers, declining 3.97% and 4.19% respectively.  The UK did not fare much better with the FTSE 100 losing 3.35%.  European markets fell 1.56% and Japan declined 1.39%. The US market had a strong start to the month, hitting a new all-time high mid-month with the signing of the phase one US-China trade deal, before falling back.  Overall it rose 0.42% in sterling terms on the back of a modest strengthening in the dollar with the result that the MSCI World index declined by only 0.11%.

Both government and corporate bond yields fell (prices rose) in January as investors moved into less risky assets.  UK gilts rose 3.54% whilst corporate bonds also did well, achieving a return of 3.07%.  The oil price declined by 11.75% and commodities were also weak on the back of Chinese growth fears.


Economic Data

*In the Euro Area, the main refinancing rate is 0 and the deposit rate is -0.5 percent



Key Highlights

  • US economic data remains stable with the unemployment rate remaining at a 50-year low of 3.5%. Muted wage growth has kept inflation under control enabling the Federal Reserve to leave monetary policy unchanged. Rate cuts are now being forecast for 2020.
  • Eurozone growth remains weak with inflation remaining well below the ECB’s target but the unemployment rate is at the lowest rate since May 2008.
  • The first phase of Brexit drew to a close with the UK officially leaving the EU on 31st January. The GDP growth rate has picked up and there has been a sharp recovery in business confidence and the purchasing managers’ indices for both manufacturing and services. The Bank of England’s Monetary Policy Committee kept rates on hold.
  • There was further evidence of shareholder friendly corporate activity in Japan with a number of companies engaged in boardroom battles.


Performance of RPW Models over one month to 31st January 2020


All models rose in value over the course of January. The RPW Moderately Cautious model achieved a return of 1.05%.  This was followed by the RPW Cautious model which advanced 1.01%.  The RPW Balanced model rose 0.68%, the RPW Moderately Adventurous model by 0.46% and the RPW Adventurous model by 0.05%.


Performance of RPW Models over three months to 31st January 2020

Over the past three months, all models have increased in value. The RPW Adventurous model rose by 5.26%.  This was followed by the RPW Moderately Adventurous model which advanced 3.97%.  The RPW Balanced model rose 3.27%, the RPW Moderately Cautious model by 2.43% and the RPW Cautious model by 1.56%.


Performance of RPW Models over one year to 31st January 2020


Over one year, all models have generated a positive return.  The best performer was the RPW Adventurous model which rose 17.40%.  The RPW Moderately Adventurous model generated a return of 13.24%, the RPW Balanced model rose 10.81%, the RPW Moderately Cautious model was up 8.50% and the RPW Cautious model rose 6.07%.

(Source: Financial Express Analytics, Total return, gross of fees, as at 31st January 2020).

Please note that these figures are unaudited and indicative. The performance of actual client portfolios may be different.  The effect of fees will reduce the returns achieved. 


Funds Update

The best performing fund was Allianz Gilt Yield, demonstrating its defensive credentials, rising 3.73% against a backdrop of challenging equity markets.  iShares Corporate Bond index (+2.77%) and L&G Sterling Corporate Bond (+2.72%) also helped reduce overall losses.  Axa Sterling Credit Short Duration Bond which is structured to have much lower duration than the other funds held in the models generated a more modest return of 0.48%.

Within the UK, smaller companies outperformed larger ones with the Numis Smaller Companies plus AIM (excluding investment companies) falling 2.07%.  This compares to the 3.31% decline in the MSCI United Kingdom.  All the UK funds held within the models outperformed their respective benchmarks with TB Amati UK Smaller Companies fund declining by 1.06%.  There was a flight to quality with Liontrust Special Situations (-1.55%) outperforming Man GLG Undervalued Assets which fell 3.12%. The iShares 100 UK Equity Index fell 2.85%.

Elsewhere Merian North American Equity had a strong month, rising 2.86%. This compares to a return of 0.63% for the MSCI North American index with the fund benefitting from its overweight to information technology and underweight to materials and energy.

The worst performer over the month was Legg Mason IF Japan Equity which declined by 6.75%. By contrast Fidelity Index Japan fell 0.82% outperforming the MSCI Japan return of -0.87%.

Both Baillie Gifford Pacific (-2.42%) and Blackrock European Dynamic (+0.38%) remained in the top quartile for their respective sectors.



The fortunes of world stock markets, in terms of both sentiment and also of the potential disruption to global trade, depends on whether or not the Wuhan coronavirus is contained in the next few weeks or declared to be a global pandemic. During the SARS outbreak seventeen years ago, China accounted for around 5% of global GDP, now it is over 20%.  Another feature to note is that by the end of the SARS epidemic in June 2003 there had been 8,422 reported cases with 774 deaths whereas as of 11th February there have been 43,114 cases confirmed of coronavirus and over 1,000 deaths, suggesting that the disease has spread much more rapidly but has a lower fatality rate.

It goes without saying that the impact on those infected and whose lives are threatened is terrible but as investors we have to try to assess the effect on portfolios and what reaction is appropriate.  The global economy, fuelled in large part by China, has grown for 43 quarters in a row. Many economists have described this period as late cycle and many column inches have been devoted to when the next recession might be. The economic data before the outbreak was mixed although disappointing numbers relating to European industrial production were offset by survey data such as the Purchasing Managers’ Indices, published at the start of February and therefore not yet reflecting any impact from the virus, pointing to an improvement in underlying sentiment. The strong returns from global equities at the end of 2019 certainly seemed to indicate that investors were pricing in a recovery on the back of an easing in the trade dispute between US and China.

It seems reasonable to assume that there will certainly be, at the very least, a short-term impact on global growth metrics and markets will probably react accordingly; there has been a marked pick up in volatility since the start of the year. However, this increases the chances of a positive intervention from Central Banks and over the past decade we have seen how markets have reacted to Central Bank activity.  It is therefore possible, that, notwithstanding the tragic human cost of the virus, global stock markets continue to benefit from accommodative monetary conditions combined with a lack of any meaningful inflation. In other words, we urge investors not to panic, but nor should they be complacent and it seems prudent to be prepared for a choppier year than last.



Investors should continue to maintain diversified portfolios with a blend of defensive and more risky investments.  A disciplined approach to asset allocation and identifying good active managers who can navigate these conditions successfully remains of the utmost importance.


11th February 2020

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