27th February 2023

Cappuccino Commentary

A relaxed read on the issues of the day

Stock markets started 2023 on a strong footing with gains across global equities. China’s re-opening after dropping the zero-Covid policy in late December helped propel the advance. Signs that inflation is easing from its autumn highs in several major regions also supported sentiment, amid hopes central banks may be close to the peak of their rate hiking cycle. Emerging markets outperformed their developed counterparts, performance was helped further by the weakness in the dollar, which has seen the currency decline for the fourth month in a row. In fixed income markets, bond yields fell (meaning prices rose). Commodities saw a negative return for the month.  Commodities and the dollar were the only major asset classes to decline during January, all other asset classes delivered positive performance, which contributed to positive returns for client portfolios. While recent results offer some relief, 2022 will unfortunately be remembered as one of the most challenging years for investors for some time.

UK equities posted gains in January but not as strong as in other regions. The consumer discretionary and financial sectors were among the top gainers. Laggards included more defensive sectors such as consumer staples and healthcare, emphasising the risk-on attitude we saw in markets for the month. This occurred amid growing hopes that the US Federal Reserve might be in a position to “pivot” to cutting interest rates in late 2023. Recent UK macroeconomic data suggested, underlying growth has been more resilient than previously thought, partly helped by an easing of energy prices, driving hopes for a milder-than-feared recession. The latest updates on monthly GDP for November (latest reading), revealed that the UK economy unexpectedly grew in November, expanding by 0.1%.

Within equities one of our preferred regions is the emerging markets. The region benefited from January’s risk-on environment. Signs of cooling inflation in the developed world fuelled optimism that interest rates may soon peak, with potentially positive consequences for growth. Developments in China also boosted investor sentiment. These included the ongoing re-opening of the economy, easing of regulatory pressures on the internet sector, more policy support for the real estate sector and better than expected Q4 GBP growth of 2.9% year-on-year. The MSCI EM Index outperformed the MSCI World Index over the month.

Within developed markets – European equities was the best performing region. The risk-on environment boosted the most economically-sensitive areas of the market such as information technology and consumer discretionary. Eurozone data showed the region eked out 0.1% growth quarter on quarter in Q4. Forward-looking indicators raised hopes that the region may continue to avoid recession. Inflation edged lower in December – the annual inflation rate falling to a 9.2% year-on-year increase verses the prior reading of 10.2%

Bond markets also broad-based gains with government, investment grade and high yield indices all finishing higher. Several inflation price indicators have started to turn lower, and this has led to growing expectations that interest rates may be close to peaking which should aid bond markets. In addition, there is growing consensus that an imminent economic slowdown may provide support for government bonds in particular.

The commodity index recorded a negative performance in January. Energy and livestock were the worst-performing components of the index, while industrial metals and precious metals saw the biggest gains. Within energy, the price of natural gas was sharply lower for the month.


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    Copia Capital Management

    Hamilton House, 1 Temple Avenue, London, EC4Y 0HA

    Understanding the risks

    This information is intended for professional financial advisers only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such. Model investment portfolios may not be suitable for everyone. The value of funds can increase and decrease, past performance and historical data cannot guarantee future success. Investors may get back less than they originally invested.

    Copia Capital Management is a trading name of Novia Financial Plc. Novia Financial Plc is a limited company registered in England & Wales. Register Number: 06467886. Registered office: Cambridge House, Henry St, Bath, Somerset BA1 1JS. Novia Financial Plc is authorised and regulated by the Financial Conduct Authority. Register Number: 481600.

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