MARKETS IN A NUTSHELL — FOR JANUARY 2025

January started well for investors, despite threats to US tech valuations and newly inaugurated US President Donald Trump’s opening salvo of executive orders rattling markets. But it was European bourses that rallied most — rising over 8% — on earnings beats and hopes for an early resolution to the war in Ukraine.

The emergence of Chinese AI upstart DeepSeek dented US tech valuations by challenging the notion that better AI models would require massive capex budgets that only large US incumbents could afford. Market darling Nvidia fell 17% on 27 January, losing nearly $600 billion in market cap — the biggest one-day wipeout for any company in US stock market history.

Developed market bond yields traded broadly higher on concerns about the inflationary effects of Trump’s policy mix. New US Treasury Secretary, Scott Bessent, has signalled a desire to lower 10-year US bond yields. However, structural challenges — most notably a widening fiscal deficit — make significant reductions difficult without concurrently slowing economic growth.

Gold made new highs again, with industrial metals also gaining in the month. Oil prices gained, thanks to winter weather and fresh US sanctions on Russia. Commodities stocks boosted South Africa’s resource-heavy bourse, with the FTSE/JSE All Share index rising 2%. Chinese stocks were muted amidst the uncertainty surrounding US tariffs. 

The Foord global funds had an especially good month, adding attractive absolute returns while also beating their benchmarks. The Foord South African multi-asset funds were positive, but lagged peers, owing to their low resources weighting when commodity stocks gained most. Mandate-dependent investments in Naspers and Prosus were hurt when the Pentagon added Tencent to its list of Chinese military companies — with Tencent saying the move was ‘clearly a mistake.’

Looking ahead, US equities continue to trade at lofty levels. The S&P 500 Index’s forward earnings yield trades just above 4%. In comparison, US 10-year Treasury bonds are yielding about 4.5%. The resultant negative equity risk premium is rare and reminiscent of the dotcom era’s extremes. Notwithstanding January’s tech wobble, the US market remains heavily concentrated in the giant US tech stocks still trading at extreme valuations.

Last month’s volatility reminds us that while market sentiment can shift abruptly, a disciplined, diversified approach remains our best investment strategy. As our Singapore colleagues usher in the Year of the Snake — symbolising wisdom, strategic thinking, adaptability and flexibility — we remain focused on quality investments with solid growth prospects and prudent valuations.