Monday, January 4, 2021

Asia Times: Equities end 2020 with strong gains, but can that upward momentum be sustained in 2021?

  • Dollar
  • Gold
  • Euro
  • Pound
  • Stocks
  • Oil


Market Recap: Equities end 2020 with strong gains, but can that upward momentum be sustained in 2021?

Stocks in the US added to gains on the final day of 2020, as investors place their continued faith for a rally in the coming year thanks to positive vaccine developments and political certainty. The rally in equity prices came late into Thursday's trading session, after mixed trading earlier in the day. With thin trading volumes at play, momentum from US President Donald Trump’s signing of a US$2 trillion stimulus bill that includes US$900 billion in Covid-19 related aid is likely helping to boost asset prices. Investors will be looking towards the Georgia runoff elections that is set to happen on January 5th in the US as it will decide which party will have control over the US Senate. Favour appears to be tilted towards Republicans' winning at least a single seat, which will tilt majority towards their party as it currently stands at 48-50 (Democrats-Republicans). This will mean that there may be some short-term downside on the release of the results, as it is widely expected that a Republican-controlled Senate will be the largest obstacle for Democrat’s higher propensity for spending. However, a republican senate does also mean that tax reform plans by the new White House administration come later in January will likely be blocked, suggesting that downside is likely to be only temporary even if upside is limited due to reduced spending and increased likelihood of policy lock ups. This coupled with the surging Covid-19 cases thanks to a new strain of the novel coronavirus with higher transmissibility may mean that momentum in equity prices is likely to slow in the first part of 2021.

Indexes Daily Change (%) Net Change Closing Price
Dow +0.65% +196.92 30,606.48
S&P500 +0.64% +24.03 3,756.07
Nasdaq +0.14% +18.28 12,888.28
*Source: Bloomberg

Sector performance was broadly higher in the S&P500, with utilities leading gains alongside financials and real estate. Energy lagged, likely on mixed sentiment regarding crude oil prices as OPEC+ producers hike output by 500,000 barrels per day starting this month. The spread of outperformers in the index suggests that there is still some caution in the market, likely thanks to reported vaccine delays and portfolio rebalancing as funds close the year. Small caps were similarly mixed. VIX continues to trade at elevated levels relative to long-term averages but is near its lowest levels since the onset of the pandemic. Looking ahead, volatility traders may want to look at newly listed high-profile companies such as DoorDash and Airbnb as analysts return from holidays, suggesting that there may be an influx of coverage on those companies this week.


2020's performance may be record setting in some areas, but equities in certain geographies are still underperforming. The Nasdaq had a record year with gains upwards of 40%. Most indices in the US has also recovered all losses earlier in the year following the onset of the virus, with small caps catching up in gains in the final quarter of 2020, supporting the narrative that there has been a rotation outside of growth sectors. Outside of the US however, only tech-heavier indices have strongly recovered. The UK's FTSE100 remains the worst performer of the year, marred by Brexit sentiment. Forward price-earnings ratios continue to suggest that the HSI and STI remains attractive in terms of valuations relative to the S&P500 compared to other indices such as the KOSPI and the Nikkei. The discount in HSI is likely also related to the political risk premium in the region and its heavy weightage on financials which investors expect to face pressure from capital outflows, which may benefit Singapore as it remains a viable alternative as a financial hub for Asia.

Indexes Yearly Change (%) Yearly Net Change Quarterly Change (%) Quarterly Net Change Monthly Change (%) Monthly Net Change Closing Price
Dow +7.25% +2,068.04 +10.03% +2,789.58 +2.62% +782.56 30,606.48
S&P500 +16.26% +525.29 +11.10% +375.27 +2.56% +93.62 3,756.07
Nasdaq +43.64% +3,915.68 +13.79% +1,561.77 +4.32% +533.17 12,888.28
Russell 2000 +18.36% +306.39 +28.97% +443.65 +7.56% +138.81 1,974.86
S&P600 +9.57% +97.75 +28.99% +251.46 +6.90% +72.18 1,118.93
FTSE100 -14.34% -1,081.92 +9.88% +581.07 +1.19% +75.79 6,460.52
Dax +3.55% +469.77 +7.76% +988.01 +2.51% +336.48 13,718.78
Stoxx -5.14% -192.51 +11.23% +358.55 +0.78% +27.40 3,552.64
Nikkei +16.01% +3,787.55 +18.37% +4,259.05 +2.45% +656.63 27,444.17
CSI300 +27.21% +1,114.71 +13.60% +623.89 +2.85% +144.19 5,211.29
KOSPI +30.75% +675.80 +23.44% +545.58 +9.08% +239.22 2,873.47
ASX200 -1.45% -96.98 +12.16% +714.16 -0.02% -1.44 6,587.10
HSI -3.40% -958.62 +16.08% +3,772.08 +2.50% +663.45 27,231.13
STI -11.76% -379.02 +13.72% +343.07 +1.06% +29.69 2,843.81
*Source: Bloomberg

The greenback gained against most of its G10 peers on the final day of 2020, despite the strong performance in the equities market. This may have been due to end-of-year fund rebalancing activities. Sterling managed to edge out gains, likely as momentum from the post-Brexit trade deal between the UK and EU continue to spur optimism in the currency. However, this momentum may be unable to last as the country's economy will now face both the impact of surging Covid-19 cases along with likely trade friction with the EU thanks to the delays in ratifying the trade deal. This will likely be especially true if we look at sterling cross currency pairs outside of the dollar. For the year ahead, we expect the reflation trade to continue, i.e. an unfavourable outlook for the dollar thanks to vaccine developments, fiscal and monetary spending as well as a more balanced economic recovery starting to take shape. Implicitly, this would also mean that commodities, and subsequently commodity-related currencies are likely to benefit from this. Traders will probably need to note of the higher volatility of commodity prices, and consequently commodity-linked currencies, which suggests that a diversified portfolio on broad commodity-related currencies with frequent rebalancing could see added benefit as a proxy in place of a direct commodity trade.


Safe haven assets appeared to be mixed with a stronger bias towards the upside last Thursday ahead of the new year. Gold gained while silver inched lower. The Japanese yen fell against the dollar but gained against the euro. US Treasuries gained across the board, with benchmark 10-year yields falling 1bp to 0.91%.

Safe Haven Assets Daily Change (%) Net Change Closing Price
Gold +0.21% +3.97 1,898.36
Silver -0.99% -0.26 26.40
USD/JPY +0.06% +0.06 103.25
*Source: Bloomberg
US Treasury yields Daily Change (bps) Yield (%)
2-Year -0.0bps 0.12%
10-Year -1.0bps 0.91%
30-Year -1.1bps 1.64%
*Source: Bloomberg

Crude oil prices inched slightly higher on Thursday, boosted by tailwinds from a positive weekly stockpile report in the US. The US Energy Information Administration (EIA) reported a drawdown of 6.1 million barrels for the week ended December 25th, close to double of analysts’ forecasts. Still, crude oil prices ended 2020 more than 20% down year-to-date thanks to the pandemic and an initial surge in OPEC+ output earlier in the year. Oil traders will closely watch the OPEC+ meeting that is set for today, as the coalition looks to decide on output levels in February. We expect crude oil prices to face pressure in the early part of the year as the market is unlikely to be able to fully ignore the short-term risks that are tied to crude oil demand. This includes the surging cases around the world and delays in vaccine distribution (including the risk of slow adoption by the general population). The rising likelihood of another production hike by OPEC+ is likely to also put downward pressure on crude oil prices as well, as we expect members to be more inclined to opt for increased production thanks to strong gains in crude oil prices in November and December.

Oil Futures Daily Change (%) Net Change Closing Price
Brent +0.33% +0.17 51.80
WTI +0.25% +0.12 48.52
*Source: Bloomberg

Stocks in Asia opened 2021 mostly higher aside from the Nikkei as the Japanese government was reportedly considering declaring a limited state of emergency. The report came from NHK, although no official sources were cited. The report comes as the country continues to experience a surge in Covid-19 cases. The Nikkei was trading more than 1% lower while the ASX200 was trading upwards of 1% in the earlier hours of Monday’s trading day. The KOSPI was trading mixed, with some downward pressure seen by the 9.19am (GMT +8). This may also have been due to Covid-19 related reports that South Korea has extended its current social distancing rules by another two weeks. Futures tracking major indices in the US were trading with a negative bias as of 9.03am (GMT +8).

Asia Daily Change (%) Net Change Last Price As of (GMT +8)
Nikkei -1.16% -315.48 27,128.69 8:53:15 AM
KOSPI +0.27% +7.66 2,881.13 9:13:10 AM
ASX200 +1.08% +71.70 6,658.80 9:13:15 AM
*Source: Bloomberg
US Futures Daily Change (%) Net Change Last Price As of (GMT +8)
Dow Futures -0.19% -59.00 30,438.00 9:03:18 AM
US Futures -0.19% -7.00 3,741.75 9:03:17 AM
Nasdaq 100 Futures -0.35% -45.00 12,840.50 9:03:17 AM
*Source: Bloomberg

Economic releases for the day ahead include (all timings in GMT +8):

  • China Dec Manufacturing PMI (Caixin) (9.45am)
  • Germany Dec Manufacturing PMI (Markit) (4.55pm) (F)
  • UK Dec Manufacturing PMI (Markit) (5.30pm) (F)
  • US Dec Manufacturing PMI (Markit) (10.45pm) (F)