The kōura market wrap for January 

08 February 2023

The global markets fight back 

As inflation starts to cool across the world, global markets had one of the strongest months of January in a long time.

It is truly amazing what a difference a few months make. A few data points can change sentiment and impact the way investors think about the markets.  

Case in point, global markets were up 5.5% last month – one of the strongest months of January we’ve seen in a long time. Interestingly, the tech (and interest rate-sensitive) Nasdaq market delivered its best January of all time, lifting 11% in the month.

Data was the main driver for this rally, as it shows that inflation is starting to slow faster than anticipated, whilst economic growth is still holding up. So, a soft landing is back on the cards.

What’s more, the market rally was global and strong across the world: alongside the inflation slowdown, we’ve also seen China’s reopening continue to accelerate as well as the warmest winter on record in Europe reducing energy demand.

Meanwhile, one market that keeps confusing and confounding all investors is the crypto market. After supposedly suffering a knockout blow in 2022, crypto has returned with a vengeance. Bitcoin has delivered a staggering 40% return this year, with a number of smaller coins returning many multiples of this.

At the moment, we’re not far from being back in a bull market, with markets being up almost 20% from their October lows. That said, as we have found over the past six weeks, markets can turn on a dime, and a few pieces of economic data is all that is required to change the narrative in this highly volatile environment. 

The kōura funds are impacted by currency (translation of local currency indices to NZD) and also differences in constituents between the underlying indices and the actual investments that the kōura funds invest in. kōura returns are net of tax. The kōura Carbon Neutral Crypto Currency Fund inception date was 23 May 2022. Returns over 12 months are annualised. Past performance is not necessarily an indicator of future performance and return periods may differ. 


So, what’s driving markets? Here are some key factors to watch out for.


1. Inflation data continues to improve 

Around the world, inflation data continues to improve, with a clear slowdown appearing in the inflation statistics. This is primarily driven by the cooling in goods inflation (thanks to supply chains and shipping costs normalising) as well as a slowdown in global housing markets, which in turn it’s slowing the growth of residential rents (a critical component of inflation). 
With inflation sharply slowing, central banks may not need to raise interest rates as high as expected. The revised inflation expectations have also seen interest rates fall significantly from their October highs. This will likely mean less economic damage, which is seen as a massive positive for markets.  
Having said all that, we do still need to be cautious though. The latest employment data continues to show an extremely tight labour market, and the 1970s showed us that it can take a number of bouts before inflation is fully brought under control. 


2. Economic resilience remains stronger than anticipated 

Global economic data also continues to surprise to the upside.   
Despite 2022 throwing the fastest rise in interest rates ever seen, consumers and companies in the US remain remarkably resilient and in good shape. Plus, we have recently seen improvements in retail sales and manufacturing sentiment data in the US market. The Q4 earning season – while not all good news – showed that companies delivered better results than initially expected (though expectations were very low). 
Meanwhile, the warmest winter on record in Europe has allowed an energy crisis to be averted.  Contrary to expectations, industry has not needed to shut down and energy prices have been rapidly falling. Gas storage levels are higher than in a typical January, against all odds. And what was looking like an inevitable and painful recession has the potential to be avoided. Germany, in particular, is showing far greater economic strength than anyone had dared to hope for.   
As for China, the country announced in December that it would reopen its economy and remove the Covid restrictions. At the time of announcement, most people anticipated that it would be a slow and steady reopening taking from six to 12 months, to manage infections and health outcomes. Instead, border reopening has occurred almost immediately: borders have now reopened fully and almost all restrictions have already been lifted. This, of course, is expected to drive massive economic activity both in China and around the world.   
The Western world will benefit from this reopening through:


  • A normalisation of the Chinese industrial machine, allowing manufacturing chains to fully recover and return to normality without the threat of further lockdowns; 

  • The recovery of Chinese consumer spending;  

  • The growth of commodities (particularly energy) as industrial activity and travel recover; and 

  • The restart of tourism: pre-Covid, China was one of the largest and fastest-growing outbound tourism markets in the world, and that is now expected to pick up again at full tilt. 

Overall, the picture is looking very rosy. Looking back, a mere six weeks ago a global recession was looking almost inevitable, but increasingly a soft landing appears as the most probable scenario.


3. A crypto resurgence

In the back end of 2022, most market commentators had called Bitcoin out for the count. And many thought that the FTX failure was the last straw to destroy all trust in the sector. Therefore, it’s been amazing to see such a strong start to the year for Bitcoin and most other crypto currencies.

On the other hand, it’s important to point out that the resurgence is based on very low trading volumes, which indicates the recent price increase may be as much a result of no sellers as a true change in sentiment. 


Disclaimer: The views and opinions expressed are those of the author Rupert Carlyon, the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance. 

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