The start of 2017 was marked by another month of positive returns for equities but more subdued performance from fixed income assets.
In the UK, the FTSE All Share fell 0.33% but small- and mid-cap indices appreciated, especially companies at the lower end of the market capitalisation scale.
European, US and Japanese equity markets all delivered small positive returns for investors, but Asian and emerging markets performed strongly. Chinese and Brazilian equities were stand-out performers after a weak period in late 2016.
The key political event of January was the inauguration of Donald Trump as 45th President of the United States. The number and scope of executive orders triggered has firmly put to rest any hope he would back away from his more extreme campaign pledges.
A cynical outsider might say Trump is tackling the US Presidency like a seven-year old would a marathon. Whatever your opinion of his first few days in office, Trump is clearly a man on a mission. While US equities held firm, the clearest expression of investor discontent was a weakening of the US dollar. It marked the worst January for the US dollar in a decade, as it fell by 2-5% against the major currencies.
Fixed income returns were more muted. UK government bonds ended the month down 1.77% while corporate bonds fell 0.95%. Global sovereign bonds, as measured by the Barclays Global Aggregate Bond index, also fell (-0.68%).
It is worth touching on the price of gold this month, which rose 3.3% in sterling terms and nearly 5% in dollar terms. Flows into gold have been very strong in the last few weeks of 2016 and the start of 2017, causing the price of the yellow metal to appreciate. Why is this noteworthy? Many investors like to use gold as a hedge against market volatility, and it is another sign that the current calm in the markets may not continue through 2017.
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