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We have spoken a few times about the narrowness of performance in equity markets. This returned again in January this year.
The chart below shows the performance of the World Equal Weighted Index (grey line) and its performance relative to the Market Cap Weighted Index (blue line). Through much of 2023, the equal weighted index underperformed and it took a lurch down in January of this year. Renewed interest in the AI theme was a factor, but in the background was the narrowness of economic performance – only the US economy was beating expectations. However, over the last couple of months, we can see that the performance has been broadening out and the Equal Weighted Index has been matching the Market Cap Weighted Index.
The difference we have seen since the end of January is that the economic performance relative to expectations of the euro area and China has been improving. The AI theme has not died, but it is the resurgence in the non-US economies that is the main reason for the broadening out in equity performance. Should the euro area and Chinese continue in this trend then we should see further relative recovery in the Equal Weighted Index.
