Global Market Commentary – January 2025

Published on: February 5, 2025

Please note that the content of this review should not be considered as investment advice or any form of recommendation. If you require investment advice, please do not hesitate to get in touch with a member of our qualified team.

A Rollercoaster Start to the Year

  • Stock markets (MSCI World Index) survived significant volatility to gain 3.5% in January
  • Bond markets (Bloomberg Global Aggregate Index) gained 0.5%
  • Donald Trump’s policy decisions are driving markets, with investors second-guessing his every move

Key Themes

2025 has begun with the market’s focus flipping between different topics at a lightning pace. Firstly, government bond yields spiked higher and created alarm about budget deficits. However, lower inflation data made those fears subside and led to a strong rally. News then emerged about a cut-price artificial intelligence tool from China, which knocked down the share prices of the world’s largest technology companies. Finally, as we enter February, markets had to digest Donald Trump’s flip-flopping on Mexican and Canadian trade tariffs, while considering the effects of a potential tariff war with China.

UK

The FTSE 100 has enjoyed a good spell, rising to new all-time highs and gaining 5% year-to-date: a higher return than most overseas stock markets, for once. The leading sectors include mining companies and oil producers, with commodity prices rising on geopolitical uncertainty. Banks have also fared well, as interest rates (and therefore loan rates) have remained higher for longer. On the flip side, the housebuilding and real estate sectors have had false dawns and remain down 25%-30% since interest rates started rising in 2022. Small caps have also had a more muted start to the year, remaining broadly flat.

United States

Some analysts suggest we may be close to a peak in the dominance of large tech companies. With the top five stocks now accounting for over a quarter of the S&P 500’s total valuation – a figure last matched in 19641 – and small cap stocks trading at a very wide valuation discount,2 there is certainly plenty of historical precedent for such an argument. So far, so good, as the “equal weight” index has returned slightly more than the standard, size weighted, index since new year. NVIDIA shares have dropped by 19% since China’s DeepSeek AI model was announced on 27 January, with Microsoft down almost 8%.

Europe

Europe exemplifies the old saying that “the stock market is not the economy”. The German DAX index has returned 7.5% year-to-date and 18% over six months, even though the economy has teetered on the verge of recession with political instability in the Bundestag. Some commentators point to cheap valuations as the reason for the rally,3 although five interest rate cuts from the European Central Bank will certainly have helped.

Asia & Emerging Markets

Trump’s trade war with China comes at a time when Chinese stocks are trying to rebound following a long period of poor returns. The MSCI China index lost more than 50% from February 2021 to September 2024. It has gained 20% since then and is attempting to rise further, despite the politics. Conversely, India has been a hot stock market in recent years, but the MSCI India index has suffered a 12% correction since September.

Points of Interest

This time of year usually brings some discussion of the January effect. Put simply, this is the observation that “as January goes, the rest of the year usually goes”. One 75-year study of US stocks found that if January returns are negative the average return for the year is -2%, while if January is a positive month the average yearly return rockets to 17%.6  With stocks ending comfortably higher this January, let’s hope the trend remains intact.

The US dollar has risen 7% since October and debate swirls about how it may move during the Trump presidency. This might actually matter more to the rest of the world than the US itself, as the dollar is used in 54% of export invoices and 88% of foreign exchange transactions, globally.7 It is therefore said that a weak dollar is best for the global economy, while a strong dollar makes trade more expensive and tightens liquidity across financial markets.

Summary

The start of this year has been quite an up-and-down (and up again) experience, with different headlines every day. International politics appears to be entering a new phase of uncertainty, with direct impacts on financial markets. As such, we should expect the rest of the year to be a bumpier ride, compared to 2024 which was fairly smooth. However, what we do know is that stock markets generally rise over time, so those who are able to hang on should be rewarded with long-term gains.

Note: Past Performance Is Not A Reliable Indicator Of Future Performance Sources may be found here or provided on request

Qualis Update

Please note that this should not be considered as investment advice or any form of recommendation or inducement to invest.

If you require investment advice, please contact your financial adviser.

The MGTS Qualis Funds launched in June 2023 and are managed by our wholly owned subsidiary, GWA Asset Management Ltd.

Fund Positioning

The MGTS Qualis Defensive Fund is diversified globally and invests mainly in fixed income funds, which hold government bonds and corporate bonds. The fund also invests in alternative assets, such as property.

The MGTS Qualis Growth Fund invests solely in equities and is focused upon geographic diversification. The fund invests primarily in the UK, US, Europe and Asia. The fund recently increased it exposure to US mid and small caps. For further information including the latest Fund Factsheets, please visit qualisfunds.co.uk


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