Market & Economic Update Feb 2020

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

Market Commentary

Global equity markets experienced a sharp sell-off at the end of February linked to fears over the growing number of global coronavirus cases and the expected impact on the global economy. In fact, a number of developed market equity indices experienced their largest weekly losses since the 2008 Global Financial Crisis.

Against this backdrop, global commodity markets were generally weak on expectations of lower demand. Meanwhile, the traditionally more defensive asset classes, such as core government bonds, outperformed. In currency markets, the Japanese yen and US dollar were also notably strong over the month.

In the latest chart of the month, we highlight the breakdown in the historic inverse relationship between gold prices and the US dollar.

A strong dollar has long been associated with weaker demand for core commodities, which are priced and traded internationally in US dollars.

However, the demand for ‘safe haven’ assets from global investors in recent years, particularly as core government bond yields have fallen to historic lows and market volatility has increased, has resulted in a breakdown of this inverse relationship.

Gold versus the US dollar

UK, US and Europe

  • As the performance chart highlights, developed equity markets sold off aggressively at the end of February linked to fears over the increasing number of global coronavirus cases. On a total return basis, the MSCI USA index returned -8.2% in local currency terms and -5.2% in sterling terms over the month. At the sector level, there was broad losses over the month, with the energy and financials sectors amongst the laggards over the month. There were also signs of the coronavirus outbreak starting to impact business activity and confidence in the forward-looking flash US PMI data, which highlighted a sizable drop in the services sector.
  • UK equities also delivered negative returns for investors in February despite signs of a pick-up in economic activity in January
    and expectations that the new Chancellor Rishi Sunak will loosen the fiscal purse strings in March’s budget. UK large caps (-9.0%), mid-caps (-8.5%) and smaller companies (-9.5%) were all off sharply at the end of the month. At the sector level there were broad losses, with the commodity intensive energy and materials sectors the notable laggards over the month. Conversely, it was the more defensive parts of the market, such as the utilities sector, that outperformed.
  • February was also a weaker month for European equities. On a total return basis, the MSCI Europe ex UK index returned -7.5% in local currency terms and -5.4% for sterling investors over the month. At the sector level, there was a similar pattern of losses to the other developed equity markets, with airlines notably weak as further travel restrictions were forecast for the likes of Italy. The flash Eurozone PMI data was better than forecast in terms of business activity, but there were clear warning signs regarding the outlook for supply chains linked to both the coronavirus outbreak and Brexit uncertainties.

UK, US and Europe

Asia, Japan & the Emerging Markets

  • Asian and Emerging Market equities also experienced a sharp sell-off at the end of February linked to the spread of the coronavirus and forecast economic impact. The headline MSCI Asia Pacific excluding Japan and MSCI Emerging Markets indices generated total returns of -4.2%and -5.3% respectively in local currency terms over the month. For sterling investors this resulted in returns of -1.2% and -2.2%respectively.
  • In local currency terms, Hong Kong’s Hang Seng index (-0.4%) was one of the best performers over the month, reflecting the earlier impact of the virus in the region and on equity market returns in January. However, Brazilian (-8.4%), Indian (-6.3%) and Russian (-9.4%) equities all suffered sharper sell-offs over the month.
  • Japanese equities also sold off sharply at the end of February. The MSCI Japan index returned -9.6% in local currency terms over the month and -6.2% for sterling investors. On the macroeconomic front, Japan’s fourth quarter GDP was below forecasts, shrinking at an annualised pace of -6.3% from the last quarter. The data highlighted a drop in business investment and private consumption in the period, but policymakers will be hoping this was a short-term result of October’s sales tax increase and bad weather.

Asia, Japan & the Emerging Markets

Fixed income

  • Fixed income markets were not immune from global market volatility over the month of February. Investor demand for more defensive assets, particularly towards the end of the month, led core government bond yields lower and supported total returns. In local currency terms, UK gilts returned +1.2%, German bunds + 1.3% and US Treasuries +2.7%.
  • Whilst positive compared to equities, global credit markets were marginally negative in local currency terms in February. Sterling investment grade corporates returned -0.5% over the month in total return terms, while global high yield (-1.6%) lagged, reflecting the risk-off market backdrop and fall in energy prices.



  • February was a notably weaker month for sterling against other major currencies, as the UK Government set out its negotiating position ahead of the next round of Brexit talks and investors sought ‘safe haven’ assets such as the Japanese yen and US dollar. In sterling terms, the euro was up + 2.3%, the Japanese yen was up + 3.7% and the US dollar returned +3.2%.
  • February was also another positive month for the US dollar index against a basket of currencies, again reflecting greenback’s defensive characteristics amid volatile market conditions.



  • Commodity market returns were negative again in February, highlighting the risk-off market environment and expectations
    of weaker global growth. The two headline indices, the Bloomberg Commodity and the S&P GSCI, returned -5.0% and -8.4% on a total return basis in US dollar terms over the month. In sterling terms, the returns were -2.0% and -5.5% respectively.
  • On the sub-sector level, there were broad losses over the month, with the energy sector notably weak again on forecasts of lower demand, as global travel restrictions were put in place. After performing strongly in January, the precious metals sector experienced a more volatile month, as some investors reportedly closed out their long positions in the likes of gold to help cover other losses.



  • UK commercial property markets started 2020 in marginally better form, with capital values (-0.2%) falling at a lower monthly rate compared to the fourth quarter of 2019, but still detracting from the stable income returns (+0.4%).
  • At the sector level, January’s capital returns were consistent with market movements in 2019, with marginal gains in the industrials sector, followed by flat returns from the offices sector and continued weakness in UK retail.


Datasheet – latest market returns to the 29 February, percentage returns for major asset class indices.


Important information

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.

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