Last month’s euphoria gave way to more-measured expectations of the markets. For some sectors that had rebounded strongly in November, the result was a downward adjustment. For others, the advance continued, albeit at a slower pace. The recovery that we expect in 2021 is undoubtedly favourable to the financial sector. Indeed, the latter was an important player in a number of markets. In addition, the oil price continued to rise and helped the Canadian dollar hold its ground against most foreign currencies.
The domestic market continued to do well in December, although it was not the best performer. As measured by the MSCI Canada Index, it was up 1.9% during the period. Financials, Industrials and Information Technology were the main contributors. It should be noted that the Consumer Discretionary sector posted the largest gain, but that its modest weight in the index limited its contribution to the return. As for Consumer Staples, Health Care, Communication Services and Real Estate, they contributed negatively to the performance. Once again, the bond market was stable and ended the month up slightly.
Financials had the best return in December, but the sector’s contribution to the index was the second largest, given Information Technology’s heavy weight in the U.S. market. While most sectors continued to make gains, Industrials and Utilities did not. The MSCI USA Index returned 4.1% in local currency. The loonies’ appreciation against the greenback detracted from this result somewhat, such that the monthly return was 2.4% in Canadian dollars.
Europe maintained its momentum during the month; as measured by the MSCI Europe Index, it returned 2.2% in local currencies and 3.0% when expressed in Canadian dollars. The region is the only one where all sectors contributed positively and where the exchange rate effect was positive. The best performers included Consumer Discretionary, Materials and Information Technology.
Asia also had a solid month, with a performance of 4.5% in local currencies, according to the benchmark MSCI Asia Pacific Index. Only the Real Estate sector lost value in December. Information Technology, Materials and Financials led the way on the positive side. The Canadian dollar’s strength against the basket of Asian currencies in the index dampened the return slightly, bringing it to 4.0% in Canadian dollars.
Emerging markets ended the year strongly, turning in the month’s best return. As measured by the MSCI Emerging Markets Index, they advanced 6.0% in local currencies. The performance was driven by almost all sectors, but especially Information Technology, Materials and Financials. At the other end of the spectrum, Consumer Discretionary and Real Estate lost the most value in December. Currency fluctuations had a slightly negative impact on the monthly performance, reducing it to 5.4% when expressed in Canadian dollars.