During the three month period to the end of September, Sterling weakened still further following the surprise ‘Leave’ result in the UK’s European Union referendum in June.
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 7.8% over the period. The fall in Sterling helped boost international equity returns for UK based investors. The FTSE World Ex UK Index returned 8.4% in Sterling terms, although in local currency terms, the return was ‘only’ 4.8%.
The best performing major equity region was Asia ex-Japan where the MSCI Asia ex-Japan Index returned +8.8% in local currency terms and +13.4% in Sterling terms, whilst US equities lagged (S&P500 Index, +3.9% in local market terms, +6.9% in Sterling terms).
Gilts continued to perform well as the Bank of England relaunched quantitative easing and its bond buying program (FTSE Gilts All Stocks Index, +2.3%). UK investment grade and high yield corporate debt outperformed gilts (BAML £ IG Index, +7.3%, BAML £ HY Index, +6.2%) as investors sought income further up the risk curve and the Bank of England announced that they would purchase corporate debt as part of their quantitative easing program.
The Brent crude oil price was relatively stable during the three month period to the end of September, falling just 1.2% to $49/barrel. Towards the end of the quarter, OPEC surprised the market by announcing that it had agreed to limit output and that details of the decision would be released following the next meeting.
The gold price marked time following its strong performance during the second quarter. The gold price fell 0.5% to $1316/oz by the end of the three month period. This translated into a 1.8% gain for UK based investors due to Sterling weakness against the US Dollar.