Review of 2020

Equities

Despite the challenges that COVID-19 brought to equity markets, global equities have recovered from the March 2020 lows and closed the year on a positive note.

Central banks injected liquidity into the global economy, and governments all over announced aggressive support packages to prevent irreparable damage to their economies. These measures kept asset prices afloat.

The top performing region was Asia ex-Japan, as Asian countries had managed the COVID-19 pandemic better and reopened their economies earlier than developed markets. This was followed by the US, where “lockdown” stocks such as Technology, E-commerce and Online Services companies soared as they were still able to deliver growth whilst the world’s economies almost grinded to a halt.

At the other extreme, Europe’s continued struggles with containing the pandemic and weak economic data have put its equities under pressure.

The worst performing global sectors were the energy and financial sectors (-33.0% and -7.0% respectively) due to weak global demand and low interest margins. The best performing sectors were technology (+36.4%), followed by consumer discretionary (+29.8%), where Amazon.com alone takes up almost a quarter of the sector.

Fixed Income

The very-low interest rate environment in 2020 has been beneficial for fixed income markets. The fear and uncertainty over COVID-19 has seen safer assets, such as US government bonds and investment grade (IG) bonds, gain the most. Aggressive central bank intervention to support bond markets has also made high yield (HY) bonds favourable. Emerging market debt were indirect beneficiaries, but were deemed less attractive as Latin America and Central Europe struggled to cope with COVID-19.

Currencies and Commodities

The US dollar (USD) spiked in March 2020 due to adverse reactions in the financial markets to the pandemic. It has weakened since then due to the US Federal Reserve’s aggressive easing measures. Comparatively, the European Central Bank was not able to be as aggressive, which led to the Euro (EUR)’s strong appreciation relative to the USD. The Japanese Yen (JPY) remains a safe-haven asset, and thus strengthened as pandemic uncertainties grew and persisted. China’s early reopening led to gains in the Renminbi (CNY) and the Australian Dollar (AUD), as China was one of the few engines able to continue supplying to the global economy.

Unsurprisingly, the global slowdown, the resultant drop in demand and large injections of money into the financial system, sent crude oil prices falling and gold prices soaring. However, the increase in copper prices indicated that actual manufacturing activity has recovered rather significantly.