The global equity markets began the new year with aplomb, rising more than 3,3% in January (MSCI All-Country World Equity index, in USD). The rally was fueled, in large part, by a hefty increase in European developed markets, which outperformed significantly the US shares. The return of Donald Trump for his second presidency marked a strong rally of the American stock markets, driven by his ‘America First’ agenda. However, the shares ascend was spoiled by the emergence of Chinese artificial intelligence (AI) start-up DeepSeek, which demonstrated a much cheaper way of operating, with much lower requirements for power and advanced computer chips. This ignited investors’ concerns about the return on investment for all the mega-expensive AI infrastructure out there, and many AI-related tech stocks sharply fell. Nvidia, the biggest company in the world, lost $600 billion in market capitalization in one day, the largest such decline in stock market history. On the other hand, the US shares were propelled by the ongoing reporting season, which revealed a robust set of corporate earnings from the Technology and Financial sectors. The Federal Reserve (Fed) left interest rates unchanged, commenting that there was no need to hurry with any cuts while inflation remained above its target of 2%. Asian markets lagged for the month. Japan’s central bank continued to raise interest rates (to their highest level in 17 years), which hurt shares – the yen appreciated more than 1.5% in the month, and this put pressure on the export-oriented equity market. Chinese shares posted a slight increase, anxious what would happen with Trump’s threats of aggressive tariffs. European shares rallied sharply on news of some modest economic growth, and a supportive central bank move – the European Central Bank (ECB) lowered rates by 25 basis points (bps). Stocks in Europe benefited from the large valuation discount that had opened up with the American markets, as well as from the relatively low weight of the Technology sector within it. Overall, Telecommunication services and Financials were the best-performing sectors for the month, while Information Technology was the only sector that finished in the red. For the fixed income instruments, January was a month of tightening spreads (meaning that investors showed appetite for risk). Global government bonds started the month weakly, but strongly rebounded, largely because of positive news on disinflation and favorable US labor market news. Along with the Fed and ECB, several other central banks made rate announcements in January, but the dominant market theme was President Trump’s inauguration – investors feared that the potential implications of his tax, immigration and tariff policies would fuel inflation, and this pushed up yields globally (bond prices and bond yields move in opposite directions). In the face of a tariff menace, government bond yields in Europe rose – the important 10-year German Bund yield climbed to 2.46%, while the US 10-year Treasury actually fell to 4.55%.
             The American equity markets were buoyed in January by the optimistic momentum from Donald Trump’s presidential victory, as well as the corporate earnings season, which started positively. The large-cap S&P500 Index returned 2.7% for the month, as the economy continued to show signs of strength – non-farm payrolls numbers revealed a strong US labor market, with 256 000 jobs added to the economy in December (above expectations), and a healthy GDP growth of 2.3%, annualised, in the last quarter. Core inflation (which excludes the volatile food and energy prices) eased to 3.2%, from 3.3% previously, but the Fed kept interest rates on hold. Following a total of 100 bps of rate cuts made in its prior three meetings, now the Fed signaled that there may be no further cuts coming soon, because it needed to assess the inflationary effect of Trump’s “America First” policies – most of the new President’s intentions of reducing taxes, raising tariffs, and cracking down on illegal immigration, are expected to spur inflation. Markets were rattled at the end of the month by the Chinese start-up DeepSeek, which claimed to have trained its generative AI model at a much lower cost than comparable market leaders with similar results.  Shares of AI-related companies sharply fell, as the need for vast investments in advanced AI chips and data centers was promptly questioned. NVIDIA, the biggest constituent of the S&P500 index, lost USD600 billion of market capitalization on January 27th, which was the largest one-day wipeout of wealth in stock history ever. Thus, the heavy tech concentration of US equities hurt overall performance – the Information Technology sector was the only one in the red, while all other sectors advanced for the month. Communication services, Healthcare and Financials were among the top gainers. On the US fixed income markets, credit spreads of the investment grade corporate credit continued to hover close to their tightest levels in several decades. (Credit spreads are the difference in yield between a corporate bond and a risk-free government bond; reflecting the additional risk investors take on when lending to corporations compared to the government.) In the first two weeks of January the yields of US Treasuries climbed due to investors’ expectations that Trump’s return to office would lead to wider fiscal deficits. However, bond subsequently rallied on the back of favorable December inflation data, and the AI tech sell-off. On aggregate, US government bonds delivered 0.5% for the month.  
              European equities rallied strongly in January, outperforming significantly other developed regions – the flagship European equity index Stoxx600 went up 6.3% for the month (in EUR). The Old Continent benefited from the rotation out of the US tech stocks, as well as from the easing of worries over future trade tariffs, as China, Canada and Mexico were the immediate first targets.  Data from Eurostat indicated that the Eurozone economy stagnated in 4Q, bringing the annual GDP growth of the region to 0.9% for 2024. The Purchasing Managers’ Index (PMI) however moved into expansionary territory – the composite PMI rose to 50.2 in January, compared to 49.6 previously, as the contraction in manufacturing receded (a reading above 50 indicates growth; below 50 – contraction). Meanwhile, retail sales came in at 1.2% year on year for November, marking the fifth consecutive month of growth The ECB cut interest rates, as expected, by 25 bps, and warned that economic risks remain on the downside given the potential future trade tensions with America and the weak consumer confidence on the old continent. Among stock sectors, top performers for the month were Healthcare and Financials, banks in particular. In the Information Technology sector, shares of semiconductor equipment makers experienced some drops as an echo of the DeepSeek news but still advanced for the month. Software stocks performed strongly, and so did the Consumer Discretionary sector, supported by the signs of improvement in the continent’s macroeconomic data. UK stocks also performed splendidly, with the FTSE100 index up 6.1% (in GBP) – the sharp depreciation of the British pound aided the UK market, as roughly three quarters of the index’s revenues are derived abroad. European government bonds also experienced volatility, given the hints of economic growth, coupled with slightly higher headline inflation – January’s reading climbed to 2.5% year-over-year (previously 2.4%). With Italy, France and Spain largely flat for the month, German Bunds lost a more sizeable 0.4% – investors worried about a potential debt break reform, and larger fiscal stimulus after the upcoming federal elections in February. In the UK, growing worries about the health of public finances, coupled with heightened concerns about the stagflationary domestic outlook, briefly pushed 10-year Gilt yields to the highest level since 2008. However, a lower-than-expected UK December inflation placated markets, and yields fell back by the month end, so that UK became the best performing bond region globally for the month.
             January was an unspectacular month for shares on the Bulgarian Stock Exchange. In a mirror repetition of the previous month, when the European exchanges saw remarkable growth this month, the Bulgarian indices failed to record gains. The flagship SOFIX remained almost unchanged (-0.04%); the change of all other indices also remained close to zero. There were no new initial public offerings (IPOs) during the month, but trading Allianz Bank Bulgaria corporate bonds started - the bank successfully issued BGN 50mn in December. Another notable initiative was the launch of the fifth consecutive year of the BSE's accelerator program - BeamUp Lab, aimed at small and start-up companies interested in listing on the stock exchange. Of the "blue chips" on the domestic market, the best-performing company for January was the Bulgaria Real Estate Fund REIT, which chalked up growth of 6.3%, and among those with the biggest loss was the financial company Bulgarian Stock Exchange AD, whose share price fell by a little less than 7%.

Source:Bloomberg