Written by Chris Ayton
Global equities, as measured by the MSCI All Country World Index, fell -1.4% last week but remain up +1.4% in 2026 so far. In global fixed income markets, the Bloomberg Global Aggregate Index was flat over the week in GBP Hedged terms, although higher risk credit and high yield bonds continued to outperform.
As Kier Starmer, Rachel Reeves and a group of UK business leaders head off to China this week in an attempt to strengthen economic ties, it was UK domestic data that contained some surprises last week. The UK Composite PMI, a measure of performance of the UK manufacturing and service sectors, came in a bit stronger than expected, following the release of some better-than-expected retail sales numbers for December. Estimates of government borrowing for December also came in lower than forecast, down 7.1% on a year ago, boosted by higher tax receipts. It wasn’t all good news, however, as there were further signs of a cooling in the labour market and the latest inflation data remained stubbornly high, causing further division on how fast UK interest rates will be able to fall in 2026. It was notable that the more domestically focused FTSE 250 Index of medium-sized companies (+0.1%) outperformed the broader FTSE All Share Index (-0.8%) over the week, as it has done so far this year (FTSE 250 Index +3.9% year-to-date vs FTSE All Share Index +2.4%). It remains to be seen whether this will be the start of a resurgence in UK mid-caps that have been so unloved, having lagged their larger-sized counterparts pretty consistently since 2020.
Smaller companies have also been outperforming in the US equity market. Although the broad US market, as measured by the S&P 500 Index, is only up +0.2% in January so far, the smaller-cap focused Russell 2000 Index is up an impressive +6.7% over the same period. Friday actually broke a run of 14 consecutive trading sessions in which the Russell 2000 outperformed the S&P 500 Index. This rotation comes as expectations of further interest rate cuts in the US have grown, and such cuts in borrowing costs tend to disproportionately benefit smaller businesses. After more than five years of smaller company underperformance in the US, as money has flowed endlessly into large tech companies, many of these smaller companies are also meaningfully cheaper than their larger counterparts.
The MSCI Emerging Market Index was down -0.3% over the week, although in a volatile backdrop that made it one of the best performing regional equity markets globally. The MSCI Emerging Market Index has made a strong start to this year, already up +6.0%, as investors seek to diversify their equity holdings into other regions. One market yet to benefit from this dynamic is India, as the MSCI India Index is down over -7% this year, having also fallen last year. It has been reported that foreign investors have already sold US$3bn of Indian equities in 2026, taking their overall selling to over US$34bn since the September 2024 peak. This is the second largest amount of selling by foreigners and the longest period of selling in India’s recent history. Although India’s economic growth continues to be strong, investors have seemingly been spooked by higher equity valuations there and the US introducing 50% tariffs on Indian exports, instead rotating into cheaper, previously unloved markets like Korea and Brazil. MSCI Korea is up almost +18% this year having been up +86% in 2025. MSCI Brazil is up approximately +14% this year after having risen +39% in 2025. India is undoubtedly home to some great companies, and this lengthy sell-off could present active managers with some potential new opportunities that have not looked as attractive for quite some time.
Away from equities, precious metals continued their ascent as the Greenland crisis sent some investors looking for safe alternatives to the US Dollar. Gold hit a record high of $5000 a troy ounce, and silver rose above $100 an ounce for the first time. The broad index of commodities, the Bloomberg BCOM Index, was up +5.3% last week and is up +9.2% in 2026 so far, both in GBP Hedged terms.
All performance figures are stated in Sterling terms, unless otherwise specified.
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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 26th January 2026.
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