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December Market & Economic Update by Tilney’s Ben Seager-Scott & Louie French

Welcome to our latest market and economic update, which looks back over the month of December 2020.


Global equity markets ended 2020 at record highs, supported by news of the post- Brexit trade deal, fresh Covid-19 stimulus in the US and hopes that the vaccine roll- out would help end the latest spike in cases.

Against this backdrop, Asian and Emerging Market equities outperformed developed equity markets over the month, with the latest economic data highlighting a pick-up in activity. The risk-on sentiment was also reflected across asset class returns, with oil prices continuing to rally, while the more defensive government bonds were the main laggards over the month.

December’s market performance ended what was a notably strong final quarter for risk asset returns and a positive year overall. Despite being amongst the main laggards during the fourth quarter rally, government bonds and gold delivered positive returns overall in 2020, highlighting the economic uncertainty resulting from the pandemic and subsequent policy responses.


In the latest chart of the month, we highlight the increase in US breakeven rates, which ended the year at their highest levels in two years.

As a reminder, the breakeven rate represents a measure of expected inflation derived from the difference between the yields of the nominal 10-year Treasury and 10-year inflation-linked Treasury bonds.

Market expectations of inflation over the next decade continued to rise over the second half of 2020, reflecting hopes of a post-pandemic economic recovery boosted by vaccine distribution, higher energy prices and expectations of further stimulus linked to Joe Biden’s election victory and the chances of the Democrats gaining control of Congress.


  • US equity markets ended 2020 at fresh highs, supported by another weak month for the US dollar and Covid-19 relief stimulus being agreed by policymakers in Washington. In local currency terms, the MSCI USA index returned +4.1% over the month and +1.7% for sterling investors. At the sector level, there were broad gains in December, with financials outperforming for a successive month and energy stocks benefitting from the rally in oil prices. Utilities were the main laggards again, alongside consumer staples and industrials.
  • UK equities were also positive performers in December, as Brexit negotiators provided an early Christmas present by announcing that a trade deal had finally been reached. On a total return basis, UK large caps (+3.0%) lagged UK mid-caps (+6.1%) and UK smaller companies (+7.3%) over the month. At the sector level, there were strong returns from basic materials, financials and industrials, whilst the health care sector ended 2020 on a weaker note.
  • After a strong month of returns in November, European equities ended 2020 in a positive fashion despite large parts of the continent facing further lockdowns. The MSCI Europe ex UK index returned +2.2% in local currency terms and +2.1% for sterling investors over the month. At the sector level, European banks were marginally negative over the month after their strong rally in November. The Brexit trade deal news and hopes of a recovery in economic activity provided a boost to key export sectors, such as automobiles.
  • Overall, the final quarter of 2020 saw developed equity markets deliver strong returns for investors, with a notable rotation towards the more economically sensitive and value parts of the market. In sterling terms and on a total return basis, UK equities (+10.6%) outperformed European (+9.1%) and US (+7.0%) equities. However, for 2020 overall, UK equities (-13.2%) were the notable laggards, with returns significantly behind the technology-driven US equities (+17.6%) and European equities (+8.2%).


  • Asian and Emerging Market equities delivered another month of strong returns for investors in December, supported by the risk-on sentiment, a weaker US dollar and hopes of an economic recovery gathering pace in the New Year. The headline MSCI Asia Pacific excluding Japan and MSCI Emerging Markets indices generated total returns of +4.2% and +4.9% in sterling terms over the month.
  • At the individual country level and in local currency terms, there were positive returns from Brazilian, Indian and Russian equities again over the month to end a notably strong fourth quarter. Chinese equities were also positive in local currency terms as its economy continued to show signs of recovery, with the mainland Shanghai Composite index returning +2.4% and Hong Kong’s Hang Seng index +3.4% over the month.
  • After an exceptional month in November, Japanese equities delivered another positive month of returns for investors in December, supported by an upwards revision of third quarter GDP and further stimulus from the Japanese government. The MSCI Japan index returned +3.1% in local currency terms and +1.7% in sterling terms.
  • Overall, the strong final quarter helped Asian and Emerging Markets deliver positive returns for investors in 2020. The headline MSCI Asia Pacific excluding Japan and MSCI Emerging Markets indices generated total returns of +19.0% and +15.0% in sterling terms, while the MSCI Japan returned +11.4%.


  • December’s risk-on sentiment was also reflected in the performance of fixed income markets, with credit markets outperforming sovereigns over the month. In local currency terms, global high yield (+2.4%) ended 2020 positively, followed by investment grade sterling corporates (+1.7%).
  • The laggards again over the month were the more defensive government bonds, particularly in the US where yields rose. In local currency and absolute return terms, German bunds were flat, US treasuries returned -0.3% and UK gilts outperformed with returns of +1.6%.
  • Market sentiment and the hunt for yield amongst some investors saw high yield outperform investment grade credit and government bonds over the final quarter of 2020. In local currency terms and on a total return basis, global high yield returned (+7.5%), followed by sterling corporates (+3.9%), UK gilts (+0.6%), German bunds (+0.3%) and US treasuries (-0.9%).
  • For 2020 overall, the returns from government bonds in local currency terms were much stronger US treasuries (+10.1%), UK gilts (+8.3%) and German bunds (+0.9%). Credit markets were also positive performers over the year, with sterling corporates (+8.7%) marginally outperforming global high yield (+8.0%) in local currency terms.


  • The US dollar was weak again in December to end one of its worst years since the global financial crisis. Against the US dollar, the euro appreciated +2.3%, sterling +2.3% and the Japanese yen +1.0% over the month. For 2020 overall, the euro returned +9.0%, sterling +3.2% and the Japanese yen +5.3%. Notably, the Chinese renminbi appreciated +6.5% against the US dollar over 2020.
  • Despite the weak period for the US dollar, a number of emerging market currencies finished 2020 at the bottom of the FX performance charts and with double-digit losses versus the US dollar. These included the Brazilian real (-22.6%), Russian ruble (-16.2%), Argentinian peso (-28.7%) and Turkish Lira (-19.9%).
  • After dominating the headlines for the past four years, the Brexit trade deal cliff-edge and subsequent deal or no-deal news flow resulted in a volatile and positive end to 2020 for sterling. In sterling terms, the euro was down -0.1% and the Japanese yen was down -1.4%. For 2020 overall, the euro appreciated +5.6% and the Japanese yen was up +2.0%.


  • Global commodity markets delivered another month of strong returns for investors in December, with markets continuing to rally on a weaker US dollar and vaccine optimism. The two headline indices, the Bloomberg Commodity and the S&P GSCI, returned +5.0% and +6.0% on a total return basis in US dollar terms over the month. In sterling terms, the returns were +2.5% and +3.5% respectfully.
  • At the sector level, December was a notably positive month for agriculture and oil prices. Oil prices have continued to rise in recent months linked to hopes of an economic recovery, US stimulus and lower inventories. These moves were in contrast to natural gas prices, which plummeted on milder US weather forecasts for January and expectations of demand. Despite the generally risk on sentiment, December was also a positive month for precious metals, highlighting the weaker US dollar and continued economic uncertainty.
  • Overall, the fourth quarter of 2020 was a positive period for commodity market returns. In US dollar terms, the Bloomberg Commodity and the S&P GSCI returned +10.2% and +14.5% on a total return basis. However, for 2020 overall commodity markets were in negative territory after the weak first half of the year. In US dollar terms, the Bloomberg Commodity and the S&P GSCI returned -3.1% and -23.7% on a total return basis.


  • The delayed data for UK commercial property returns over the month of November saw a notable return to positive capital gains for investors. The latest MSCI UK Property data recorded total returns of +0.7% over the month, with capital values finally back in positive territory after two years (+0.2), while income remained relatively stable at +0.5%.
  • At the sector level, November’s capital values data highlighted another positive month for industrials, particularly in the South East. Offices were marginally lower over the month and the retail sector continued its familiar trend of underperforming, especially shopping centres.


The value of your investments, and the income derived from them, can go down as well as up, and you can get back less than you originally invested. Any indication of past performance or quoted yields is not an indicator of future returns. Before investing in funds, please check the specific risk factors on the key features document or refer to our risk warning notice, as some funds can be high-risk or complex, or can be susceptible to risks particular to the geographical area or industry sector in which they invest. Gold, technology and other focused funds can suffer as the underlying stocks can be more volatile and less liquid. Underlying investments in emerging markets are generally less well regulated than the UK. There is an increased chance of political and economic instability and the market(s) can be less liquid.

The property market can be illiquid; consequently, there can be times when investors will be unable to sell their holdings. Property valuations are subjective and a matter of judgement.

Any research or analysis contained in this document has been undertaken by us for our own use and may be acted on in that connection. The contents of the document are based on sources of information believed to be reliable; however, save to the extent required by applicable law or regulations, no guarantee, warranty or representation is given as to its accuracy or completeness. The document may include forward-looking statements which are based on our current opinions, expectations and projections. It is provided to you only incidentally, and should not be considered a personal recommendation or advice to invest. Any opinions expressed are subject to change without notice.

Issued by Tilney Investment Management Services Limited (Reg. No: 02830297), which is authorised and regulated by the Financial Conduct Authority. Financial services are provided by Tilney Investment Management Services Limited and other companies in the Group, further details of which are available at
© Tilney Smith & Williamson Ltd 2021

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