Global equities rebounded in January following December’s pullback with non-US developed markets outperforming the US.
The arrival of DeepSeek – a Chinese AI company – saw Nvidia plunge 17% as investors began to question the dominance of US technology companies and the vast amounts of investment that have been made into AI. However, after this initial volatility, broader markets remained robust. In contrast companies like Alibaba, JD.com and Xiamoi rallied on the news as investors reappraised their view on the outlook for Chinese technology companies.
This meant our allocation to Emerging Markets was one of the largest contributors to performance, as our position in Chinese Technology companies – which we have considered undervalued for some time – rose over 12% last month.
US equities (2.7%) were positive on the month, and we saw European and UK equities outperform. Economic growth continues to be modest in Europe, however with business activity picking up and the ECB cutting interest rates this has provided a supportive backdrop for equities with the Euro Stoxx index up 7.2% last month. Meanwhile in the UK, the FTSE 100 was up 6.2% as the depreciation in Sterling supported those companies with overseas revenues. Our ETF holdings in MSCI Europe and the FTSE 100 were therefore additive to returns.
We saw mixed performance in Government Bonds as yields moved up as investors considered the anticipated impact of the US’s trade and tariff policies. However, yields retraced as we moved through the month. Our allocation to US TIPS was additive to performance as market expectations for inflation rose over the month.
In Japan a strengthening Yen was a headwind to the country’s export market and equities were broadly flat on the month but was additive to the performance of the fund as we continue to hold a long Yen position against the Dollar and Sterling within our allocation to Diversifying Assets.
