Signia Invest Insights | January 2024
Market Review and Outlook
- January was a positive month overall for risk assets but on an intra-asset class basis it was a more mixed outcome for global financial markets, which displayed divergent performances. Developed market equities were positive (S&P 500 +1.6%) whilst emerging market equities were negative (EM Equities -4.7%). Emerging market dollar debt was up (+0.6%) whilst most other fixed income sectors ended down (global aggregate -0.3%).
- WTI Oil prices rallied strongly (+5.9%) whilst industrial metal prices declined (-1.9%). On the one hand, US economic data kept surprising on the upside for the most part, which meant equities continued their positive momentum from the fourth quarter of 2023, and the S&P 500 reached a new all-time high. However, on the other hand geopolitical concerns have persisted, particularly given attacks from Houthi rebels on commercial shipping in the Red Sea, which have caused shipping costs and freight rates to more than double recently.
- Strong macro data and rising near term inflation expectations caused sovereign bonds to lose ground as investors dialled back the prospect of both rate cuts in the first quarter of this year and less cuts overall in 2024, following Chair Powell’s suggestion in the Fed’s January press conference that a cut by March was unlikely.
- Chinese stocks have been on a wild ride, albeit mostly on the downside, and weighing on emerging market indices. The offshore Hong Kong Hang Seng Index declined -9.2% whilst the Shanghai Shenzhen CSI 300 Index was down -6.3% in January, despite several attempts of relatively lacklustre intervention from policymakers to support the stock market. Whilst short-term technical market conditions look oversold in China, only comparing to 2008 where 75% of stocks traded at 52-week lows, it does not feel like the washout yet one would like to see in order to get more interested. There is still money chasing bear market rallies, only to get flushed out again in subsequent declines.
- Fundamentally, the market is not expensive, but earnings revisions are also still largely negative and the economy appears to be decelerating, ignoring whatever support package is being thrown at it. Considering the reputational risk for an investment manager and the diminishing benchmark pressure, it appears unlikely at this stage that international institutional money will feel an urgent pressure to return to Chinese equities.
- There has been some near-term stabilisation recently but the outlook for China’s equity market, as with the domestic economy, remains bleak, with investors seemingly waiting for a more powerful and sustainable response from policymakers. They may kept waiting for some time if the value and stability of the Renminbi continues to remain the PBOC’s priority, where large and substantial monetary policy easing has been absent.
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