Sometimes it doesn’t matter how well businesses perform. Other events outside the business world like we have seen this past month can shake world stock markets.  

At the start of the month everyone was talking about the potential for world war 3, and now as we close the month it’s a worldwide virus that has investors worried.   

State of play – the main world stock market indexes  

Region  Index  Last Month Performance  Last 12 Months  Performance 
UK  FTSE All Share  -3.10%  10.79% 
US  FTSE USA  2.18%  23.99% 
Europe  FTSE Europe ex UK  -2.02%  13.86% 
Japan  FTSE Japan  -1.62%  7.48% 
Asia  FTSE Asia Pacific ex Japan  0.15%  10.09% 

Data sourced from investing.com and up to 27/01/2020. 

What’s been going on? 

The short term certainty brought about by the UK general election result gave a slight boost to UK services sector. Business is becoming slightly more optimistic now Brexit is nearing completion. However, there is still some uncertainty ahead as to what the future relationship with the European Union will look like.  

The manufacturing sector is still suffering though, so the overall UK economy was pulled down at the end of December.  

It’s not been good for British retailers either. With the likes of Mothercare disappearing and famous big names like John Lewis, Marks and Spencer and Morrisons all suffering.  

All contributing to retailers suffering their longest spell of no growth on record. 

It has been rumored that with this type of data and UK inflation falling, there could be an interest rate reduction on the cards.   

However, as we come to the end of January, new economic data out suggests January has been a better month and that the UK economy has grown slightly. So that interest rate cut could be put off for now.  

Over in the US…

President Trump ordered a military strike on a top Iranian General who has been accused of having terrorist links and causing mass deaths. The strike caused uproar in Iran and they retaliated immediately by firing missiles at US army bases in the region.  

At one stage the escalation in tensions had caused the price of oil and gold to rise significantly. Oil tends to rise when there appears to be a threat to supply, and gold rises in times of uncertainty as people treat it as a safe haven asset. 

For now things appear to have quietened down and both parties appear to have got what they want from the episode. Trump once again looking tough and Iran flexing their muscle to make it look like they can’t be pushed around.  

In terms of the US stock market, it’s been a record year for profit for some of the US’s biggest banks, and the stock market itself hit another record high.  

This was all partly helped by the fact the US and China have finally signed the first part of a trade deal, which means tariffs will start to reduce. 

In Europe…

Germany appears to be going through a recovery and is trying desperately to pull the rest of the zone with them. 

2019 saw Germany achieve record high employment. It will also benefit massively from the improved trade relations with the US and China.  

The overall EU economy was down though as France suffered a drop in its services sector which suffered a new round of strikes.  

The European Central Bank decided not to reduce interest rates any further but have decided to review their inflation target which is currently 2% (the same as the UK).  

In China…

China’s economy grew at its slowest pace in 30 years during 2019 with the trade war with the US making a significant impact. China is still growing much faster than the US though and it’s still been a good 12 months for Asian stocks.  

Currently China are having to tackle the Coronavirus which is spreading quickly through the country and reaching other parts of the world. This has sent stock markets around the world down at the end of January and we will know more next month just how serious this virus is.  

A POINT TO NOTE: 

90% of your investment return is driven by your asset allocation (the mix of equities, bonds, property and cash etc) not the stock or manager you pick. If you would like help making sure you are using the right mix please contact us.

Risk warning:

Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.