In January, stocks posted their first monthly decline since August, as fears that the coronavirus may dent travel and consumption in China and beyond rattled markets. The STOXX® Global 1800 Index slid 0.6%in dollar terms1 during the month, for its first negative January since 2016. The index rallied 28.4% in 2019, its best annual result in a decade. For a review of 2019’s best-performing indices, please click here.
The pan-European STOXX® Europe 600 Index fell 1.2% when measured in euros and the Eurozone’s EURO STOXX 50® Index lost 2.6%. The STOXX® Asia/Pacific 600 Index decreased 1.5% in dollars. The STOXX® North America 600 Index fared better, adding 0.2% in dollars to a new record.
The current outbreak of novel coronavirus was first reported from Wuhan, China, at the end of last year. By late January, the epidemic had grown and expanded to other countries, with the number of confirmed related deaths surpassing 270.2 Airlines have cancelled flights and stores have shut to combat contagion. Economists are already penciling in a significant deceleration in Chinese economic growth due to the various measures and general public fear.3
Worst daily drop in February
The STOXX® China A 900 Index fell 0.8% in dollars during the month, although the index was spared the worst of the coronavirus scare during late January. Chinese markets were closed for the Lunar New Year holiday during the month’s seven last trading sessions, coinciding with the heightening of the virus concerns. Markets reopened on Feb. 3, when the STOXX China A 900 Index tumbled 9.4% in dollars, its worst daily retreat on record.
All but five of 21 developing-nations indices fell in dollars during January. The STOXX® Emerging Markets 1500 Index dropped 5%. Similarly, all but five of 25 developed markets tracked by STOXX retreated when measured in dollars. The STOXX® Developed Markets 2400 Index fell 0.7% in dollars but rose 0.6% in euro terms, as the common currency weakened 1.3% against the greenback.
Six of 19 supersectors in the STOXX Global 1800 Index scored a gain for the month, led by the STOXX® Global 1800 Utilities Index’s 5.5% advance. The STOXX® Global 1800 Oil & Gas Index was the month’s worst performer, shedding 8.9%, as energy prices tumbled.
Minimum variance posts gains
Minimum variance strategies proved to be one of the strongest segments amid the market wobbles.
The STOXX® Global 1800 Minimum Variance Index had a total return of 1.8%, or 2.4 percentage points more than the benchmark STOXX Global 1800 Index. The STOXX® Global 1800 Minimum Variance Unconstrained Index, meanwhile, outperformed by 3 percentage points. The STOXX® Europe 600 Minimum Variance Index and its unconstrained version also registered positive returns.
A similar conservative approach played out among factor-based strategies. The EURO STOXX® Low Risk Premium Index was the top gainer among eight EURO STOXX® Multi Premia® and Single Premium Indices, adding 2.5% for the month. Elsewhere, the set of factor-based indices showed mixed performances during January, with gauges tracking the reversal and value factors faring the worst.
New STOXX Factor Indices
January marked the launch of the new STOXX Factor Indices, which target proven sources of excess returns and, as well, manage exposure, liquidity and risk characteristics to provide an efficient approach to factor investing.
The indices confirm the outperformance of low-risk characteristics in January and investors’ apathy towards the value style (Table 1).
|Factor Index||January return|
|STOXX® Global 1800 Ax Size Index||-1.8%|
|STOXX® Global 1800 Ax Low-Risk Index||2.4%|
|STOXX® Global 1800 Ax Value Index||-4.5%|
|STOXX® Global 1800 Ax Quality Index||-1%|
|STOXX® Global 1800 Ax Momentum Index||2.5%|
|STOXX® Global 1800 Ax Multi-Factor Index||0.8%|
Source: STOXX, Gross returns in USD, back-tested data January 2020.
Global Fintech Index in strong showing
Within the revenue-based STOXX® Thematic Indices, the iSTOXX® Global Fintech Index stood out with a 5.3% advance during January. The STOXX® Global Electric Vehicles and Driving Technology Index came out at the other end, losing 5.6%. The revenue-based STOXX Thematic Indices consider companies’ sales exposure to sectors closely related to specific trends to determine their inclusion in a particular index.
STOXX’s artificial-intelligence-driven thematic indices, on the other hand, lagged their benchmark during December. The STOXX® AI Global Artificial Intelligence Index, STOXX® AI Global Artificial Intelligence ADTV5 Index and iSTOXX® Yewno Developed Markets Blockchain Index all fell more than 1%.
Climate, Low Carbon, ESG
The STOXX® Global Climate Change Leaders Index stood out among STOXX’s Climate Indices during January after posting a 0.5% return and the widest monthly outperformance to the STOXX Global 1800 Index in 18 months.
The STOXX Low Carbon Indices performed broadly in line with their benchmarks during January, while STOXX’s ESG and Sustainability Indices showed mixed performances. The EURO STOXX 50® ESG Index, which incorporates negative exclusions and ESG scoring into stock selection, underperformed the EURO STOXX 50 Index by nine basis points.
Elsewhere, the STOXX® Global Maximum Dividend 40 Index, which selects the highest-dividend-yielding stocks, declined 1.9% in dollars on a net-return basis. The STOXX® Global Select Dividend 100 Index, which tracks companies with sizeable dividends but also applies a quality filter such as a history of stable payments, fell 1.7% on a gross-return basis.
STOXX® Global 1800 Index
EURO STOXX 50® Index
STOXX® Europe 600 Index
STOXX® North America 600 Index
STOXX® Asia/Pacific 600 Index
STOXX® China A 900 Index
STOXX® Developed Markets 2400 Index
STOXX® Emerging Markets 1500 Index
STOXX® Global 1800 Minimum Variance Index
EURO STOXX® Multi Premia® and Single Premium Indices
STOXX Factor Indices
STOXX Low Carbon Indices
STOXX® Global Climate Change Leaders Index
EURO STOXX 50® ESG Index
STOXX® Thematic Indices
STOXX® USA ESG Impact Index
1 All results are total returns before taxes.
2 World Health Organization data.
3 Markets Insider, ‘China may cut 2020 growth forecast amid coronavirus fallout: report,’ Feb. 3, 2020.