January 2017 was perhaps more remarkable for its political headlines than for excitement in investment markets. Newly elected U.S. President, Donald Trump wasted no time in beginning his reform agenda after his inauguration on January 20, almost immediately imposing immigration restrictions and withdrawing the United States from the controversial Trans-Pacific Partnership.
Equity markets picked up where they left off at the end of last year, rising strongly at the start of the month. However, as the month drew on, some equity markets drifted lower as investors expressed concern over ongoing uncertainty surrounding a number of key upcoming global political events.
In Europe, U.K. Prime Minister Theresa May announced that, as part of exiting the European Union (E.U.), the U.K. would also leave the European Single Market. This announcement came as a surprise to many, who had expected that the U.K. would seek to negotiate a way to remain within the Single Market after exiting the European Union.
The uncertainty surrounding the circumstances under which the U.K. will exit the EU was further compounded later in the month when the Supreme Court ruled that Article 50 could only be triggered by a vote in the full Parliament, rather than unilaterally activated by the government of the day. Article 50 is a clause that, when triggered, would officially set in motion the U.K.’s exit from the EU.
Despite rallying strongly at the start of the month, the increased uncertaintly caused the U.K. FTSE 100 index to retract slightly, finishing the month down by -0.61% in local currency terms.
Although other European economic data strengthened in January 2017, the uncertainty in the U.K. combined with concern over the upcoming Presidential Election in France caused the benchmark Euro Stoxx 50 index to fall by -0.38% in Euro currency terms.
However, a recovery in Europe still appears to be underway with companies recording higher than expected earnings results in Q4 2016. We expect this improvement will continue at a slow but steady pace throughout 2017 which, not withstanding some potential political hiccups, should see European shares perform well overall throughout the year.
Despite the political controversy surrounding Donald Trump’s first couple of weeks as President, US shares recorded modest gains in January 2017 with the S&P 500 finishing the month up 1.79% in US dollar terms.
Unfortunately, due to a strong rally in the value of the Australian Dollar against the US Dollar (the $A gained about 5.2% against the US$ during the month), Australian investors did not enjoy the benefits of this rise with US shares actually recording a negative return when converted back to Australian Dollars.
The significant spike in the value of the $A was caused by both a general decline in the $US after the Trump administration appeared to ‘talk down’ the $US, and a general appreciation in the value of the $A on the back of stronger commodity prices.
Australian shares fell slightly in January (S&P/ASX200 Accumulation Index down -0.79% for the month), weighed down by weaker performances in most sectors, including Real Estate (-4.71%) and Banks (-2.0%). The notable exception was Materials, which had another positive month, up 4.74%.
However, even though Australian shares fell overall in the month of January, on an annual basis, Australian Shares have recorded a very strong return of +17.3% for the 12 months to 31 January 2017.