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It will come as no surprise that the main talking points for investors in January surrounded the inauguration of President Trump and the advent of Trumponomics 2.0. Whilst the noise was deafening from Trump regarding policies he may or may not impose, the impact on markets during the month was negligible (as what Trump says and does can often prove to be very different!)

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However, at month end it became apparent that true to his word he would be imposing 25% tariffs on neighbouring Mexico and Canada and 10% on China and announcing intentions to put them on EU goods. Should stringent tariff policies be implemented and sustained the consensus is that they will slow growth, increase US inflation, thus reducing the scope for rate cuts and lead to a strengthening dollar. So not many winners from an investment perspective! However, they may just be the start of a bargaining process.  It is clear that tariffs will be a key theme over the coming months.

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Whilst tariffs will reignite inflation fears there was a modicum of good news in January with US core inflation falling (somewhat unexpectedly) to 3.2% but this is not likely to be enough for an imminent US rate cut. Whilst in the UK December’s reading fell to 2.5% from 2.6%, which may allow the Bank of England room to cut. In Europe ECB Governor Christine Lagarde is confident that European inflation is heading back down to the 2% target and the ECB cut rates by 0.25% to 2.75% in January.

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On the growth front China miraculously hit the 5% growth target for 2024. In contrast the stagnant European economy was highlighted by Germany reporting a second year of falling GDP – 0.2% down in 2024 with little sign of a rebound on the way in 2025. UK GDP wasn’t much better in November- it grew, but by a measly 0.1% and with October’s budget contributing to job losses it doesn’t look like improving anytime soon. For the record the IMF believe Germany will grow by 0.3% this year, the UK by 1.6%, the US by 2.7%, and India by 6.5%.

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The other story of the month surrounded the Chinese company Deepseek. Few had heard the name until about a week ago, but it’s thrown the world of AI into a tailspin. The reason being is that it has supposedly developed an AI model at a fraction of the cost of the big US tech offerings. This hammered US tech for a few days with Nvidia losing $600bn in a day. The question is whether what Deepseek has done is a game changer in lowering costs and if it is, what it means for the tech giants.

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Deepseek has certainly provided a wakeup call of the risks of the US Tech behemoths having their dominance challenged. Will 2025 finally be the year the market widens out from tech, AI and the US to a more global rally?

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Market Watch

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So how did stockmarkets begin 2025? Despite the political noise it was a positive month for most areas and even the impact on the US mega cap techs following the Deepseek sell-off did not derail global benchmarks with the MSCI World index posting a gain of 3.5%. Although the US stockmarket proved to be one of the laggards the S&P 500 still posted a monthly gain of 2.8%. Perhaps surprising given the economic woes European equity markets were amongst the strongest performers and the MSCI Europe Ex UK index gained 7.1%, maybe it’s the actions of the ECB with another rate cut that is helping propel markets. The FTSE also finally joined the party in January hitting several all-time highs and posting a monthly gain of 6.2%. Unlike the US which is at the top end of the cyclically adjusted PE ratio, the FTSE is not and is cheap compared to history; in an uncertain backdrop buying cheap stocks seems a sensible option.

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In Asia and emerging markets, the picture was more muted. The Japanese stockmarket failed to join the rally with the Topix up just 0.14% as the Bank of Japan increased interest rates to 0.5% the highest level since 2008. China investors remained cautious during January by the threats of Trump tariffs although the MSCI China was up by 1%. However, India was the biggest laggard with the MSCI India index falling back 2.4%. The Indian stockmarket has fallen four months in a row – the longest losing streak for 23 years as foreign investors have been taking profits against a backdrop of high valuations and economic uncertainty.

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Turning to bond markets and January has provided a modicum of calm. The 10-year US treasury finished the month yielding 4.54% compared to 4.57% at the start of the year. The equivalent ten-year gilt also offers 4.54% compared to 4.56% a month ago. Apart from the ECB which cut again, a “higher for longer” environment was already priced into markets going into 2025 with very few US cuts priced in for this year – contrast that with the picture a few months ago when a scarcely believable 9-10 cuts were priced into US markets for 2025. The Fed’s mandate of employment and inflation makes their task harder and possibly less likely to lead to cuts with almost full employment in the US.

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Commodity markets highlighted the pointlessness of trying to second guess short-term price movements based on the Trump agenda. Despite his mantra to “drill baby drill” and his demands to various Middle East countries that the price of oil needed to be lower, a barrel of Brent gained $2 during January and finished January trading at $76.76 compared to $74.64 a month back. Uncertainty is good news for Gold which started the year with a bang hitting a new all-time high – it didn’t close the month there but still rose over 6% in January to finish at $2835 an ounce.

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On the currency front the pound was under a bit of pressure in January losing 2% against the Yen, about 1% versus the Euro and marginally down versus the US dollar. An illustration that the “risk on” focus remains in place was highlighted by Bitcoin up a further 10% in Euro terms.

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Fund Watch

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Going over to the fund world now and there was one clear winner, and one clear loser last month. Gold good, India bad. However, gold doesn’t have its own sector and therefore doesn’t top the sector tables – Latin America did with the average fund gaining 11.4% in January. After a poor 2024 when Latam funds propped the tables falling 25% on average January feels somewhat of a rebound – is it a dead cat bounce though with tariffs on the way? As mentioned earlier Europe also had a good month with two sectors in the top five. India was by far and away the worst sector last month falling over 5% with the only other sector dropping in value the UK Smaller Companies sector which lost 0.88%.

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From an individual fund perspective, the story looks a bit different at the top with gold funds dominating on the back of more new gold highs. The top six funds were all gold with Baker Steel Gold & Precious Metals topping the tables with a gain of 17.41%. Overall, 3491 funds out of 3662 delivered a positive return in January. At the foot of the performance tables the entire bottom ten were Indian funds – Invesco India propped the table falling 10.57%.

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For investment trusts it was similar to the fund world for sectors with Latin America topping the tables gaining 11.2% and two European sectors in the top five. Tech finished second in the AIC universe and the Commodities & Natural Resources sector completed the top five.  From an individual trust perspective, it was another trust with a takeover proposal that topped the pops; it was the turn of Ground Rents Income to receive an offer to go private at a substantial premium to the prevailing share price, but well below the last published NAV. This could be the trend for 2025 – an esoteric trust being taken over topping the tables each month. How many will be left by the year end?

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Manager watch

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So how are fund managers viewing markets against a backdrop of Trumponomics 2.0? The Bank of America Monthly Fund Manager survey provides an idea of global manager sentiment, and the current consensus appears unsurprisingly to be a strong favour of the dollar and US equities (with the year beginning with a record overweight). However, this can often highlight where the crowded trades and contrarian opportunities are.  One note of caution for risk assets from the survey is that cash levels have fallen to 3.9% the lowest since 2021.

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The survey shows that professional investors are underweight bonds, given expectations of a higher for longer rate environment. However, bond managers we saw during January are sanguine given the high starting yields available and believe that the lack of expectations of rate cuts could be overdone.

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The numbers…

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Important Information

This document is produced by Fairview Investing Ltd, an independent research consultancy. The content is for information purposes only and does not constitute financial advice. The commentary or research provided do not constitute a personal recommendation to deal. Any statements, opinions, forecasts, and figures are made by Fairview Investing (unless otherwise stated). They are considered to be reliable at the time of writing but may be subject to change.

Fairview Investing accepts no legal responsibility or liability for the content of this material. The contents of the document are not to be re-produced or circulated without the express permission of Fairview Investing Ltd. Fairview are independent investment consultants sitting on the Investment Committee of EXE Capital Management.

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