LONDON (Reuters) – So far this year, financial markets are not behaving as advertised. Stocks are down, bonds are up and the dollar is stronger – the exact opposite of what many large investors expected. Entering 2005, there was a reasonably strong consensus among strategists that equities would provide modest returns, led by Asia and the eurozone, that bonds would underperform and, perhaps with less conviction, that the dollar would weaken. A few weeks in, reality is something else entirely. Most major stock market indices are down. The US S&P 500 has lost around 2.5 percent, Japan’s Nikkei is off more than 1.75 percent and MSCI’s main world index has shed more than 3 percent. The eurozone has offered a mixed picture, with the blue chip DJ Euro STOXX 50 down nearly a half a percent and the broader FTSEurofirst 300 up around three-quarters of a percent. The most popular bet for equities – emerging market Asia – has disappointed. MSCI’s relevant index is off two-thirds of a percent, not an impressive start for the double-digit gains many are hoping for this year. On the other side of the asset divide, government bonds, which were supposed to be a bad deal in a climate of low yields and potentially tighter monetary conditions, have been outperforming. Prices for eurozone and Japanese bonds are higher. Even the 10-year Treasury, widely seen as vulnerable, has seen its yield fall as buying has kept up. And the dollar, predicted by many to be on a fundamental slide, has strengthened against major currencies, including a roughly 4.5 percent rise on the euro. Explanations for January’s market performance are varied and to a certain extent depend on the asset under consideration. But a lot of the movements are put down by strategists to relatively sharp moves at the end of 2004. Equities, for example, rose quite sharply in November and December. «Markets rallied but perhaps now are beginning to pay back,» said Philip Barleggs, head of allocation at Britain’s Insight Investment.