A volatile beginning to the year

The agreement means the US will suspend its next planned round of tariffs, as well as cutting the existing tariff rates on around $110bn (£83.71bn) of Chinese imports to 7.5 per cent from 15 per cent. All this while China has committed to boost its imports from the US by around $200bn over the next two years, to allow greater access to its markets for financial services companies, enforce intellectual property protections and be more transparent in its currency management practices.

Better times ahead

The UK officially left the EU on January 31 2020. Very little will change as the UK now begins a 10-month transition period hoping to negotiate a new free trade agreement. As a result, the risk of a ‘hard Brexit’ will persist, and it may even intensify by mid-year as news-flow from the discussions hits the front pages.

The flash purchasing managers’ index releases for January were encouraging, indicating a sharp improvement in both manufacturing and services, with the composite rising to expansionary territory to 52.4 from 49.3.

The UK stock market may be poised for a comeback given the attractive yields UK stocks offer in an income-starved world. With an overall dividend yield of 4.1 per cent the UK equity market is one of the highest dividend payers.

Exposure to UK domestic equities is now seen to be favourable due to attractive valuations and the potential for currency uplift further down the line – although we should expect better entry points.

What’s to come

Heading into the new year, global stock markets appeared vulnerable to a correction, despite the recent strong momentum and frothy sentiment.

Unknown risks like coronavirus require defensive positioning in order to protect downside risk and minimise unnecessary volatility. At this stage it is unclear whether this is the start of something more ominous, or just another blip in this 11-year-old bull market.

Fears (not always rational) could lead to a further significant spike in financial market volatility. And this is long overdue: an opportunity to allocate into equities and participate in their recovery, as soon as the virus spread slows and negative news has been fully priced in.

Simon Black is head of investment management at Dolfin