FTSE 100 vs S&P 500 vs MSCI World Index: Monthly Market Review (January 2020).

FTSE 100 vs S&P 500 vs MSCI World Index: Monthly Market Review (January 2020).
  • FTSE 100 index ended lower in January 2020
  • US Stocks ended January on a lower note
  • MSCI World Price Index shrunk marginally in January
  • Oil prices slumped above 15% in January

The month of January 2020 that has just ended was full of political turmoil, oil prices recording big swings, rifts escalating between Iran and the United States, Brexit being delivered with Britain entering into a 11-month transition period, global indices slumping from their all-time high levels, U.K. broader indices underperforming MSCI World Price Index and S&P 500 index and Coronavirus spreading due to which death toll in China exceeded 200 and disrupted imports, exports and tour & travel industry badly across the world.

FTSE 100 vs S&P 500 vs MSCI World Price Index, monthly performance. Source: Thomson Reuters.

During January 2020, the broader equity indices of the U.K. underperformed its peer indices like the S&P 500, MSCI World Price Index, etc. The FTSE 100 slumped approximately 3.35% in January 2020. The index represents a portfolio of 100 large-capitalized companies listed and traded on the main market of the London Stock Exchange. Also, a majority of its constituent companies are more global businesses and derive a majority of their earnings from the global market. Therefore, the prevailing global stereotypes have more weightage on the FTSE 100 index.

The global market trend in January 2020 was bit sluggish, with the United States major S&P 500 – a market capitalisation weighted index that gauges movement in the world's top-500 companies, skidded approximately 0.04%, whereas MSCI World Price Index- a global equity index that represents a portfolio of large and medium market equity performance across all the 23 developed markets and covers approximately 85% of the free-float-adjusted market capitalisation in each market, slumped approximately 0.58% in January 2020. This indicated that the broader market trend in January 200 was negative. However, U.K. equities were in more pain than its peers, as the relative price performance between FTSE 100 and S&P 500 index for January 2020 was -3.3%, whereas relative price performance between FTSE 100 index and MSCI World Price Index stood at -2.75%, respectively.

However, there is a lot of positive sentiment which is building up, especially for the U.K. equities for the rest of 2020. Like first level of Brexit which was exercised on January 31, 2020, with the onset of a transition period marking the commencement of a formal trade deal which provided some sort of relief to the investors, global economy starting to recover from a year-long slowdown after world's two major economies (U.S. and China) signed a trade deal as on January 15, which also brought something to cheer for multinational governments.

Also, global portfolio investors have recently said that they are planning to open strings of their purse to buy U.K. equities, as they are available at a relatively lower price and discounted valuation against their global peers.

The domestic equity index of the London Stock Exchange, the FTSE 250, ended January 2020 on a negative note and was down more than 3% in January. FTSE 250 is typically recognised as a true economic barometer for U.K’s economic health. A majority of volatility in FSTE 250 index was fuelled because of uncertainties hovering over the future relationship between U.K. and E.U. This would have significant weightage on companies which are enjoying benefits of a single E.U. market and customs union. Also, their future supply chain costs will depend upon how intelligently UK and EU can negotiate a trade deal, without hurting both the sides significantly.

FTSE 100 cues – January 2020

Out of the FTSE 100 constituent companies, there were a total of 65 companies, which handed negative price returns in January 2020. Some of the top laggards were NMC Health PLC (down 27%), Tui AG (18.4%), B.T. Group PLC (down 16.4%), Carnival PLC (down 14.4%) and Johnson Matthey PLC (down 13.1%).

During the period under consideration, there were a total of 20 FTSE 100 constituent companies which tumbled more than 10% and 43 companies declined higher than 5%.

However, there were specific pockets, which have substantially outperformed FTSE 100’s trend during January 2020. Stocks like Persimmon PLC (up 13.3%), BAE Systems PLC (up 11.8%), and Taylor Wimpey PLC (up 11.2%) and Coca Cola HBC AG (up 8.6%), respectively.

There were total 3 FTSE 100 constituent companies which delivered price return above 10% in January 2020 and 9 companies traded above 5% in the same month.

Major macro events of January 2020:

Brexit Delivered

Finally, the U.K.'s tumultuous relationship of 47-years with European Union ended at 11:00 PM GMT on January 31, 2020, and Britain entered into an 11-months of Brexit transition period. PM Boris Johnson pronounced with a sober and but optimistic address to the country and said that the event was a certainty all along. During his speech, PM said that the European bloc evolved over 50-years in a direction that now doesn’t cater to the interests of Britain. The exit of Britain from the European Union stood as the first exit by any large country and left the union with 27 members.

Coronavirus death toll exceeded above 200 in China

The death toll from the coronavirus outbreak that originated in Wuhan, China, has surpassed to 259 with more than 1,500 people in a serious condition, according to a media report. China has another 15,000 and more suspected cases, while 102,427 people who have had close contact with infected people being monitored.

The wide and rapid spread of this Chinese virus has jolted the world economy further, which was at the cusps of recovery after a trade deal was signed between the U.S. and China in mid-January. Especially, the tour & travel and export & import industries are witnessing severe pain.

U.K. tour, travel and leisure industry stocks are also in red, like the tour and travel major Tui AG, which  gave up more than 18% by the end of January 2020, Carnival PLC which tumbled around 14.43%, and Iron and Steel major EVRAZ Plc, whose stocks fell around 12.5%.

PM Johnson Government approved Huawei’s limited use in Britain's 5G networks

As on January 28, 2020, the British government approved Huawei to build the U.K.'s 5G networks; however, access is limited for Huawei’s equipment in the country’s roll-out of 5G mobile infrastructure. And, despite approving Huawei in the country's 5G network roll-out, PM Johnson's government said that it was a controversial choice.

Also, 5G technology uses existing 4G equipment as its base. Taking Huawei out of the 5G network expansion implies replacing Huawei’s 4G equipment that is currently installed at considerable cost to the telecom operators, something neither the U.K. nor the operators can easily afford.

US-China signed a phase-1 trade agreement

On January 15, 2020, the officials from the United States and China signed a phase-1 trade deal as the world’s two biggest economies try to cool down more than 18-months of a trade spat. The deal includes provisions to eliminate intellectual property theft and unwilling transfer of technology and augment Chinese purchases of U.S. manufactured goods.

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