By Philip Lawlor, head of Global Investment Research
Developed Asian and emerging-markets stocks continued to climb in January, strongly outperforming developed peers still battling the economic ravages of the pandemic. Could this be the beginning of a major shift in regional leadership?
The FTSE Asia Pacific ex Japan and FTSE Emerging Indexes both rose 3.7% for the month, led by respective outperformances from South Korea and China (up 4.4% and 7.2%, respectively). Most developed markets, particularly the UK, lagged in January, culminating in a 0.1% drop in the FTSE All-World Index.
Thanks to this strong showing, the relative gains for Asia Pacific and emerging markets now match those of the US Russell 1000 for the 12-month period
Relative regional returns vs FTSE All-World Index ex local market (TR, local currency, rebased)
Source: FTSE Russell. Data as of January 31, 2021. Past performance is no guarantee to future results. Please see the end for important disclosures.
Weak US dollar a major catalyst
As illustrated below, emerging-market leadership has been closely aligned with the depreciation of the US dollar since last March, when the aggressive synchronous monetary and government policy response to the pandemic and easing lockdown restrictions helped revive risk appetite and the rally in risky assets. The trade-weighted US dollar index has fallen to its lowest level since mid-2018.
FTSE Developed/FTSE Emerging returns (Rebased, TR, LC) vs DXY Dollar Index
Source: FTSE Russell. Data as of January 31, 2021. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
China outperformance gathered pace
China’s superior success in containing the virus’s spread and restoring economic growth also played a major role in this shift in emerging-markets fortunes.
After a late-2020 lull, China’s outperformance versus its global peers regained strength in January, reaching among its highest levels of the past year, while the rest of the BRIC markets lagged. For the past 12 months, the FTSE China has outpaced the FTSE All-World by more than 25 percentage points.
FTSE BRIC country returns relative to FTSE All-World Index (TR, LC, rebased)
Source: FTSE Russell. Data as of January 31, 2021. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
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