Quarter in Review Q4 2020

Key quarterly themes

Investors eye a Biden presidency

Covid cases rise, but vaccine brings hope

Brexit deal finally agreed

Markets snapshot

Over the quarter, the MSCI AC World equity benchmark rose 12.9% (10.0% in euro terms).

Emerging markets rose 16.1% (14.8% in euro terms), benefiting from a weaker US dollar and expectations of a recovery in global growth in 2021 linked to the roll-out of vaccines.

Pacific Basin equities rose 14.3% (15.1% in euro terms), supported by a robust economic backdrop in China and Asia.

Europe lagged, rising 10.2% (10.5% in euro terms) as the stronger euro acted as a drag on exporters. Meanwhile, growth was relatively weak due to the severe restrictions put in place to combat the renewed rise in Covid-19 cases.

The UK also underperformed, rising 10.6% (12.1% in euro terms), due to Brexit-related uncertainty and ongoing difficulties in tackling Covid-19. 

The ICE BofA Merrill Lynch Eurozone > 5-year sovereign bond benchmark rose 1.7%. German 10-year yields fell to -0.57%, as the Eurozone economy contracted in the fourth quarter due to the restrictions announced to combat the rise in Covid-19 cases.

Yields were also pushed lower by the €500bn increase in asset purchases announced by the European Central Bank (ECB) and the extension of these until March 2022.

Peripheral spreads continued to narrow, supported by the formal approval of the EU’s €750bn Recovery Fund, which includes €390bn of grants. By quarter-end, Italian 10-year spreads against Germany falling were down to 111 basis points (bps), Spanish spreads had narrowed to 61ps, while Portuguese spreads had fallen to 60bps.

European investment-grade corporate bonds rose 2.0%, as yields and spreads fell to 0.33% and 91bps, respectively. Despite the contraction in Eurozone growth in the fourth quarter, concerns over potential defaults continued to ease thanks to the better growth outlook for 2021 and ongoing ECB purchases of investment-grade corporate bonds.

The euro rose against the US dollar to 1.2225. The US dollar, which is generally viewed as a ‘safe haven’ asset, suffered in the more ‘risk on’ environment.

Commodities rose 14.5% (9.7% in euro terms), supported by the expectation of higher demand in 2021 on the back of a rebound in the global economy.



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