During the three month period to the end of October, Sterling weakened still further following the surprise ‘Leave’ result in the UK’s European Union referendum in June and confirmation that the government was looking to trigger Article 50 before the end of March 2017.
Generally, UK listed companies with significant overseas earnings made good gains and those domestically focussed companies, whose share prices had fallen sharply at the tail end of June, rebounded as the near term economic outcome of the referendum has not been as bad as first feared. The FTSE All-Share Index returned 4.2% over the period. The fall in Sterling helped boost international equity returns for UK based investors. The FTSE World Ex UK Index returned 8.1% in sterling terms, although in local currency terms, the return was only + 0.1%.
The Emerging Market equity region performed strongly (the MSCI EM equity Index returned +3.9% in local currency terms and 13.2% in Sterling terms. US equities lagged in local market terms (S&P500 Index, -1.7% in local market terms), but US Dollar strength against Sterling ensured a strong return for Sterling based investors (S&P500 Index, +6.9% in Sterling terms).
Gilts performed poorly as prices retraced from new highs stimulated by the Bank of England relaunch of quantitative easing and its bond buying program (FTSE Gilts All Stocks Index, -3.6%). UK high yield corporate debt outperformed gilts (BAML £ HY Index, +2.6%) as investors sought income further up the risk curve.
The Brent crude oil price rose 13.8% to $48.3/barrel during the three month period to the end of October. OPEC surprised the market by announcing that it had been agreed to limit output and that details of the decision would be released following the next meeting.
The gold price fell 5.6% to $1316/oz during the three month period. This translated into a 2.3% gain for UK based investors due to Sterling weakness against the US Dollar.