top of page
  • Writer's pictureMatthew Carberry

Market Highlights in January: Build Your Investment Knowledge

The market wrap is a summary of January's economic highlights across the globe.

Economics overview

The outbreak of ‘novel coronavirus’ in China eroded sentiment towards shares and other risk assets in January. Some investors suggested the disease could hinder economic activity in China and other regions, adversely affecting the growth outlook for 2020. This pushed bond yields lower.

Travel to and from China has been restricted and much of the country is in lockdown as authorities attempt to contain the virus. The impact of SARS – a similar epidemic in China in 2002-2003 – was not significant or lasting for the local or global economy.

Could investing be a good fit for your financial future? Find out where you currently stand financially with our 1-minute Personal Risk Survey.

United States

The pace of GDP growth in the US was unchanged in the December quarter. The world’s largest economy expanded at an annual pace of 2.1%; the same as in the third quarter of 2019.

There was a slowdown in consumer spending, however, which may be cause for concern given services sectors account for around three quarters of the overall economy. Policymakers will be hoping to see a rebound in discretionary spending in early 2020. It appears that Americans can afford it – wage growth continues to outpace inflation, meaning consumers have greater purchasing power.

More than two million new jobs were also created in 2019, which took the unemployment rate to a 50-year low of just 3.5%. Interest rates were unchanged, with the target Federal Funds rate remaining between 1.5% and 1.75%.


Headline inflation rose slightly more than expected in the December quarter. Prices rose 0.7% over the three-month period, the fastest quarterly increase in three years. This took the annual inflation rate to 1.8%. The increase was partly due to higher food prices, affected by disruptions to transportation owing to bush fires in November and December. Fruit prices rose nearly 7%, for example.

Employment data for December was again strong, following a better-than-expected result in November. A further 28,900 new jobs were added, almost three times the 10,000 estimate. This lowered the unemployment rate to 5.1%. New jobs were again dominated by part-time positions, but the improvement was nonetheless quite pleasing for policymakers.

Together, the stronger inflation and labour market data prompted the Reserve Bank of Australia to leave interest rates unchanged at 0.75% at its meeting in early February.


The UK’s withdrawal from the European Union occurred as planned at the end of the month, finalising the Brexit process that had been three and a half years in the making.

UK policy makers can now focus on the domestic economy, which remains subdued. Industrial production is below levels from a year ago, inflation is well below target and the latest data suggested the economy contracted slightly in November. Consumer confidence has improved slightly following the recent general election but remains fragile.

Despite speculation regarding a possible cut, UK interest rates were left unchanged at 0.75% at Bank of England Governor Carney’s last meeting. At the same time, officials lowered their GDP growth forecast for 2020, to 0.75% from 1.25% previously.

In Continental Europe, surveys suggested some underlying improvement in sentiment in the manufacturing sector – a welcome development following months in the doldrums.

Meanwhile, German inflation continued to pick up, indicating that activity levels in the Eurozone’s largest economy may be improving. The latest data also showed that German retail sales were much stronger than anticipated in November.


Corona virus-related news dominated attention in Asia. By month end, several airlines had suspended services to and from mainland China. This could affect tourism-related sectors worldwide, as Chinese tourists are estimated to account for around 30% of holiday spending globally. Around 1.5 million Chinese people visit Australia annually, for example.

In mid-month, Chinese and US officials formally signed the ‘phase one’ trade deal that had been agreed in December.

Official GDP data showed the Chinese economy grew at an annual pace of 6.0% in the December quarter, the same as in the September quarter. Growth is being supported by buoyant consumer spending domestically.

Encouragingly, Chinese exports have risen from subdued levels earlier in the year. In December, exports were nearly 8% higher than in the corresponding month a year ago.

In Japan, machine tool orders – an important barometer of economic activity levels – remained extremely weak. Industrial production is also running around -8% below 2018 levels. This reflects lower export demand, consistent with global trends.

Japanese consumers remain frugal too. Nationwide department store sales were down -5.0% in December from a year ago. Unsurprisingly inflation remains very low, prompting the Bank of Japan to continue with very accommodative policy settings in an effort to stimulate activity.

Australian dollar

The Australian dollar depreciated quite sharply, recording its worst monthly performance for more than two years. The currency lost nearly 5% against the US dollar, battered by coronavirus-related concerns. Australia’s close ties with China means ‘risk off’ sentiment around the virus is affecting the Australian dollar more than most other currencies. A weaker currency may prove beneficial for Australian manufacturers, as it makes locally produced goods more competitively priced internationally.


Optimism following the agreement of a ‘phase one’ trade deal between the US and China quickly gave way to demand and economic growth concerns stemming from the rapid spread of the coronavirus.

Oil (Brent -13.3%) felt the uncertainty sharply, while industrial metals were also lower; copper (-9.5%), nickel (-8.4%) and aluminium (-4.8%) all posted sizeable losses. Iron ore (-10.1%) also fell on China-related demand concerns. Unsurprisingly, gold (+4.7%) posted solid gains on ‘safe haven’ demand amid the uncertainty.

Australian equities

Halfway through the month, the Australian equity market looked like it would experience its best monthly return in five years. Sentiment was being supported by positive economic releases, such as surprisingly strong retail sales and positive employment figures, and the completion of the ‘phase one’ trade deal between the US and China.

However, the outbreak of the coronavirus and its threat to Chinese and, hence, global growth, felt in Australia through the tourism and education sectors, worried investors and caused the market to drop slightly into month end.

Despite these fears late in the month, the S&P/ASX 100 Accumulation Index delivered an impressive +5.1% return, the best January in 26 years. This helped the Index set new all-time highs in terms of price and total return.

All Information Technology constituents helped push the sector +12.8% higher. Afterpay (+31.7%), Australia’s leading ‘Buy-Now-Pay-Later’ company, benefited from a positive broker note that included improved customer base and sales expectations for Afterpay’s half-year results.

Given their bond-proxy nature, the Utilities sector lagged the market and provided a modest +0.6% return. The poor performance of AGL Energy (-2.8%) dragged on the sector following continued softness in forward electricity prices. The industry is expected to experience continued pricing pressure given expectations for more interconnectors, additional renewables and changes to state-based policies.

Although Australia’s small companies underperformed their large cap peers, the S&P/ASX Small Ordinaries Accumulation Index still delivered a solid +3.4% return.

Mesoblast, an Australia-based regenerative medicine company, was the best performing constituent following a promising quarterly result and increased expectations that the US Food and Drug Administration will approve Mesoblast’s Ryoncil product.

Listed property

Global listed property kicked off the calendar year with solid gains in January. The FTSE EPRA/NAREIT Developed Index returned 2.2% in local currency terms and a more impressive 5.9% in AUD terms, reflecting the weaker Australian dollar.

The sector was propelled by the easing of ongoing uncertainties, as the US and China officially signed a ‘phase one’ trade deal and the UK officially withdrew from the European Union. Falling interest rates also supported the sector.

The Australian property sector led the charge as A-REITs (Australian real estate investment trusts) returned 6.4% during the month. The sector was led higher by National Storage REIT (+17.2%), which received a takeover bid. Other outperformers included Charter Hall (+16.1%) and Goodman Group (+11.4%).

Hong Kong (-7.8%) was by far the worst performing market. Sentiment towards equities in the region plunged in the second half of the month, as concerns around the coronavirus outbreak intensified in China and surrounding regions.

Global equities

Momentum in global equities continued from 2019 early in the month, with the MSCI World Index establishing new highs in the first 20 days of January. The signing of the ‘phase one’ trade deal between the US and China, combined with increasing conviction of a gradual recovery in global growth helped support global share markets. That optimism was quickly snuffed out, however, on mounting fears over the coronavirus and its impact on Chinese, and hence global, growth.

From 20 January, the MSCI World dropped -3.1% in local currencies, to end the month down -0.2%. The AUD’s associated plunge helped insulate Australian investors in global shares from negative returns. In fact the Index ended the month up 4.4% in AUD terms, the strongest January return since 2013.

Most major markets fell into negative territory in the latter half of the month. The best performing of these was the S&P 500 Index in the US, which closed January only marginally negative in USD. A Q4 US GDP growth rate that met expectations, the Federal Reserve keeping interest rates unchanged and a solid start to the US earnings season helped to offset the virus fears.

With the MSCI Emerging Markets Index rising only 0.1% in AUD in January, emerging markets have now lagged in ten of the last twelve months, bringing up the worst 12 months of relative performance (-15.5%) since January 2016. Asia was the worst performing EM region (-3.9%) in local currencies, dragged down by China (-4.9%) and Taiwan (-4.0%). That said, Asia was the strongest performing EM region in AUD terms (+0.3%) given the ‘Aussie’s’ depreciation against USD-linked Asian currencies.

Global and Australian Fixed Income

The risk that coronavirus results in a prolonged economic slowdown was reflected in fixed income markets worldwide.

Government bond yields were pushed sharply lower in all key regions. US and Australian 10-year yields closed the month 42 and 41 bps lower, respectively, resulting in positive returns from overseas and domestic bond markets.

Moves in Europe were a little more modest, but were substantial nonetheless. In the UK, 10-year gilt yields dropped 30 bps, while German Bund yields closed January 25 bps lower. Japanese JGB yields also fell 5 bps.

Essentially, any economic slowdown as a result of the virus is likely to push expectations of interest rate increases further out into the future. Moreover, it will likely result in calls for borrowing costs to be lowered even further to help support activity levels.

Global credit

Credit spreads had tightened sharply in late 2019, resulting in favourable returns from both investment grade and high yield corporate bonds. In January, however, concerns associated with the virus outbreak – specifically how a slowdown in activity levels might affect corporate earnings – saw spreads retrace some of this earlier movement.

A slowdown in China could have broader reaching implications for companies in other regions. Remember, China now accounts for around 16% of global GDP. Unsurprisingly, issuers in Asia were among the worst performers. Chinese property companies with exposure to Wuhan, for example, fared particularly poorly. Spreads widened elsewhere too, although from a regional perspective European issuers held up the best. The European Central Bank continued with its €20 billion/month asset purchase program. So far, around a quarter of the total has been channelled into corporate bond markets, providing significant support to credit valuations in the region.


This material has been prepared and issued by First Sentier Investors (Australia) IM Ltd (ABN 89 114 194 311, AFSL 289017) (Author). The Author forms part of First Sentier Investors, a global asset management business. First Sentier Investors is ultimately owned by Mitsubishi UFJ Financial Group, Inc (MUFG), a global financial group. This material contains general information only. It is not intended to provide you with financial product advice and does not take into account your objectives, financial situation or needs. Before making an investment decision you should consider, with a financial adviser, whether this information is appropriate in light of your investment needs, objectives and financial situation. Any opinions expressed in this material are the opinions of the Author only and are subject to change without notice. Such opinions are not a recommendation to hold, purchase or sell a particular financial product and may not include all of the information needed to make an investment decision in relation to such a financial product. To the extent permitted by law, no liability is accepted by MUFG, the Author nor their affiliates for any loss or damage as a result of any reliance on this material. This material contains, or is based upon, information that the Author believes to be accurate and reliable, however neither the Author, MUFG, nor their respective affiliates offer any warranty that it contains no factual errors. No part of this material may be reproduced or transmitted in any form or by any means without the prior written consent of the Author. In Australia, ‘Colonial’, ‘CFS’ and ‘Colonial First State’ are trademarks of Colonial Holding Company Limited and ‘Colonial First State Investments’ is a trade mark of the Bank and all of these trademarks are used by First Sentier Investors under licence.

Count Financial Limited ABN 19 001 974 625, AFSL 227232 (Count). Count is 85% owned by CountPlus Limited ACN 126 990 832 (CountPlus) of Level 8, 1 Chifley Square, Sydney 2000 NSW and 15% owned by Count Member Firm Pty Ltd ACN 633 983 490 of Level 8, 1 Chifley Square, Sydney 2000 NSW. CountPlus is listed on the Australian Stock Exchange. Count Member Firm Pty Ltd is owned by Count Member Firm DT Pty Ltd ACN 633 956 073 which holds the assets under a discretionary trust for certain beneficiaries including potentially some corporate authorised representatives of Count Financial Ltd. ‘Count Wealth Accountants’ is a business name of Count. Count advisers are authorised representatives of Count. While care has been taken in the preparation of this market update, no liability is accepted by Count, its related entities, agents and employees for any loss arising from reliance on this market update.

26 views0 comments


bottom of page