January investment update: what happened in markets?

What happened in markets?

It was a frenetic start to 2026 as precious and industrial metal prices soared, with gold, silver and copper hitting all-time highs before experiencing sharp declines towards the end of the month. Momentum in commodity markets had been strong coming into the year, which appears to have attracted the attention of speculative investors who wanted a share of the spoils. Meanwhile, the price of bitcoin and other crypto-type assets went the other way.

Global equities posted further new highs in January, with non-US stock markets outperforming, led by Asia-Pacific and emerging markets. The top-performing equity sectors included energy and basic materials, with the former benefiting from higher oil prices as investors anticipated US military strikes on Iran. Elsewhere in equities, global small-cap stocks rallied as investors continued hunting for opportunities beyond US large caps.

Markets also had to contend with the prospect of additional US tariffs on Europe in retaliation for their stance on Greenland, where the Trump administration has indicated a desire to take control of the territory. However, after a meeting with European and NATO leaders, the US President indicated that the framework of a future deal had been agreed and rescinded the tariff threat.

What did we do in the funds?

With Asia-Pacific and emerging market stock markets outperforming over the month, we allowed portfolio weights to drift higher given that the corporate earnings outlook continues to improve for these regions. We also increased the position in HSBC Global Emerging Market Government Bond Fund, reflecting attractive yields and the prospect of further dollar weakness (which would ordinarily benefit emerging market bonds).

Across the VT Esprit funds we also continued to reduce exposure to Lightman European in favour of M&G Europe ex-UK, which is a purer play on European value stocks (shares trading at discounted prices relative to their history and intrinsic worth) whilst being more cost-effective. We also increased exposure to UK government bonds (Gilts) at the expense of US and European government debt, given our view that markets may be underestimating the prospect of further interest rate cuts in the UK (interest rate cuts typically being positive for bond prices).

What is the outlook?

We believe the prospect of further interest rate cuts globally is diminishing as growth picks up and inflation remains sticky. The Japanese central bank is likely to continue raising policy interest rates, and markets are waking up to the fact that Japan is likely to be joined soon by similar rate hiking decisions by the Canadian, Australian and New Zealand central banks. However, we believe the Bank of England is somewhat of an outlier, and expect it to reduce rates to 3.25%, perhaps 3%, by year-end.

After several months of speculation, Kevin Warsh was nominated by President Trump as the new Chair of the US Federal Reserve; Warsh previously served as a Fed Governor from 2006 to 2011. He has been an outspoken critic of the US central bank in recent years, calling for ‘regime change’ and criticising various Fed policies, but the initial market reaction was one of mild relief given the prospect of more extreme alternative candidates.

We see evidence of global growth improving, although inflation remains an issue in some regions. Nonetheless, a positive economic backdrop together with an improving corporate earnings outlook points to the potential for further stock market gains as we move through US corporate earnings season, albeit we await results from the US technology heavyweights.

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Written by:

Charlie Lloyd
Head of Investment, Shackleton

Wayne Nutland
Senior Investment Manager, Shackleton

 

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