The FTSE All-Share Index returned -0.6% during the first quarter of 2014. Over the same period, the FTSE World Ex UK Index rose 1.3% in local currency terms, however Sterling strengthened somewhat over the period and this reduced the FTSE World Ex UK Index return for Sterling-based investors to +0.9%. In local currency terms, the European equity market produced the strongest return (FTSE Eurofirst 300 Index, +2.1%, whilst Japanese stock markets were particularly weak (MSCI Japan, 3-month total return: -7.5%).
Equity markets rallied into the year-end and continued to push forward during the first three weeks of January, despite the announcement from the Federal Reserve in December that the tapering of quantitative easing (QE) would begin. Investors took heart that the tapering program would be drawn out over an extended period. However during the final days of January, weaker economic news from China, as well as the devaluation of the Argentinian Peso against the US Dollar, shook market confidence. A large number of emerging market currencies and stock markets reacted negatively and central banks in Russia, South Africa and Turkey increased interest rates as a result.
The company year-end results season kicked off in earnest in February and, in general, reassured investors that the threat of economic slowdown contagion from emerging to developed markets was unlikely in the near term and equity markets rallied.
March saw some of the gains from February given up, as concerns of defaults in the Chinese shadow banking sector rose and geopolitical risks came to the fore as Russia pressed ahead with it’s referendum in the Crimea.
Despite the weaker tone in the market, it was notable that there was a relatively large number of companies listing on the stock exchange for the first time and, generally, these placings were well received.
The FTSE Gilts All Stocks Index returned +2.2% over the period, outperforming equities. The Citi G10 Economic Surprise Index turned negative during the quarter suggesting that economic momentum in developed markets is weakening and this has supported government bond yields. However, there has been exceptionally cold weather in the US which has impacted economic activity negatively and this could be masking underlying strength in the economy.
The Brent crude oil price fell 2.7% during the three month period, despite increased geopolitical risks and colder weather in the US. The American authorities announced a ‘test’ release of oil from the US strategic reserve and this has been widely interpreted as an attempt to ensure Russia does not benefit from higher oil prices during this time of enhanced geopolitical uncertainty. Furthermore, Iraqi oil production is expected to increase
markedly.
In mid-March, the gold price had rallied by 14.7% since the beginning of the year, in US Dollar terms, due to investor uncertainty over Russia’s intentions for Ukraine and the economic strains being observed in various emerging market economies. However, the price then fell fairly steeply from that high point, as these concerns dissipated somewhat. This resulted overall in the gold price rising 6.5% during the quarter.
Source: Morningstar