The FTSE All-Share Index returned -2.2% during the three months to the end of April. Over the same period, the FTSE World Ex UK index rose 5.3% 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 +3.6%. In local currency terms, the US and Europe ex UK markets produced the strongest returns (S&P 500 Index +6.2%, FTSE Eurofirst 300 Index +6.0%, whilst Japanese stock market was particularly weak (MSCI Japan, 3 month total return: -4.2%).
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. However, 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 seen in 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 were a relatively large number of companies listing on the stock exchange for the first time and, generally, these placings were well received.
April saw the announcement of a significant number of proposed corporate transactions, which demonstrates a material improvement in the confidence of management teams concerning the outlook. The largest deal was the proposed takeover of Astra Zeneca by Pfizer , however there were numerous other deals announced across Europe.
The FTSE Gilts All Stocks Index returned +0.9% over period, underperforming equities. The Citi G10 Economic Surprise index turned negative during February 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 rose 1.6% during the three month period, helped by increased geopolitical risks in the Ukraine and colder weather in the US. This is despite the fact that the American authorities announced a ‘test’ release of oil from the US strategic reserve which has been widely interpreted as an attempt to ensure Russia does not benefit from higher oil prices during this time of increased tension. Furthermore, Iraqi oil production is expected to increase markedly.
The gold price has risen 3.8% during the past three months, in US Dollar terms. The metal rose strongly during the first part of the period as geopolitical tensions rose but then subsided somewhat as investors became less concerned about the Chinese economic slowdown.
Source: Morningstar