The broad pattern of market performance since Trump’s election victory continued in February in a period notable for its particularly low volatility, with the Vix ‘fear’ index now at its lowest levels since the financial crisis. Equities, led by the US, significantly outperformed bonds again; global developed equities returned 2.8% in February compared with a return of 0.4% from global bonds, taking the year-to-date outperformance of equities to 3.9%.
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The early weeks of 2017 in financial markets have been a sharp contrast to the same period in 2016, when markets fell sharply on fears about China’s slowdown and currency weakness. This year markets have continued their post-election pattern, rising on expectations of ‘Trumpflation’, and higher growth and corporate profits. Equities, again led by the US, have continued to outperform bonds, with the MSCI World index up 2.4% in January while global government bonds were up 0.9%. However, it was notable that global emerging markets, which underperformed markedly in the aftermath of the election amidst fears of trade protectionism and a strong dollar, recovered strongly, with the MSCI Global Emerging Markets index up 5.5% for the month, helped by currency gains and strong rises in Asian and Latin American markets.
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