The markets developed very positively in the fourth quarter of 2020. This was mainly due to news of the availability of several vaccines against COVID.
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Equities developed markets
Stock markets in all developed countries rose. There were no major differences. In Europe, the increase was 11%. Over the full year, Europe made a negative return of 2.8%. This was mainly due to the stock market in the United Kingdom, which had to lose 18% in 2020 despite a positive fourth quarter.
Not all companies performed equally well. Companies in the financials (including banks and insurers), energy (including oil and gas companies) and basic materials (raw materials) sectors had the best results in the fourth quarter. But over the year as a whole, prices actually went down in the financials (-11%) and energy (-34%) sectors.
Developments in emerging market equities
Emerging markets are countries that are still developing. Here, too, prices rose. The MSCI Emerging Markets Index tracks an average of stocks in these types of countries and rose 15% in the fourth quarter. Thus, this index achieved a 9% gain over the entire year. The biggest contributor to this was Asia (+18% in all of 2020). This region counts most heavily in the index. In the fourth quarter, the Chinese market rose. But countries such as South Korea and Indonesia also showed strong gains. India did less earlier in the year, but recovered.
Latin America rose sharply in the last quarter of an otherwise poor year. Markets in Eastern Europe also recovered in the final quarter. But again, over the year as a whole, there were losses.
Fixed income securities
Government bonds
Interest rates on government bonds followed the trend of the third quarter: a slight decline. This included 10-year government bond yields from Germany and the Netherlands. Other Euro countries showed a slightly larger decline.
30-year government bonds also fell slightly. This means that the yield for 30-year government bonds of Germany, the Netherlands and Finland is now negative.
Emerging market bonds
Emerging country bonds performed well. In the fourth quarter, it was mainly the more risky bonds (for example, Angola, Ivory Coast and Ukraine) that achieved good returns….
Corporate bonds
Corporate bonds had a strong quarter, both in Europe and the US. Corporate bonds in Europe outperformed a comparable portfolio of German government bonds by 1.9%. In the U.S., the standard credit index outperformed U.S. government bonds by as much as 4.2%. Differences between sectors were relatively limited.
Higher-risk global bonds also experienced another very strong quarter. The category far outperformed a portfolio of underlying government bonds. Both in the U.S., Europe and emerging markets. The best-performing sectors were energy, transportation and leisure.
Summary
The second wave of the pandemic dominated the news. And so certainly did the role of new, more infectious variants of the corona virus. Still, the markets reacted mostly positively. This was mainly due to the news that some vaccines would soon become available. This opens up prospects for recovery during 2021. Together with generous support packages from various governments, ample available liquidity and the reasonably orderly transition of power in the United States, this made for a positive market development.
What do these developments mean for you?
See below the cumulative annual returns of our investment cohorts through December 31, 2020.
