The MSCI UK All Cap NR index returned +0.9% during the three months to the end of September, underperforming the MSCI World ex UK (£) NR index which returned +4.0% in Sterling terms and +1.6% in local currency. The relative outperformance of international markets was driven largely by the decline of Sterling against most major currencies.
Stock markets rallied in July as hopes rose of co-ordinated policy responses to counteract the global slowdown. This optimism was punctured somewhat in August as trade negotiations between the US and China unexpectedly broke down and President Trump surprised the market with further tariffs on Chinese goods. However further monetary policy easing was announced in September by central banks in the USA and Eurozone and this helped support markets.
In Sterling terms, the strongest major regional equity index was Japan (MSCI Japan £ NR index, +6.5%), where some macro-economic releases suggested that that the economy was doing better than feared. Nonetheless, rising trade war risks and tensions in Hong Kong saw Asia ex Japan and Emerging Market equities perform poorly.
Alongside many developed market government bonds, Gilts performed strongly (iShares Core UK Gilts ETF, +6.2%) due to rising Brexit-related fears and expectations that central banks around the world would cut interest rates as numerous indicators that suggested that global growth was slowing faster than expected. Both Investment grade debt (iShares Core £ Corporate Bond ETF, +3.9%) and ‘riskier’ high yield debt (iShares Global High Yield GBP Hedged ETF, +0.8%) underperformed Gilts.
The Brent crude oil price ended September at $60.8/barrel, a decrease of 8.7%% since the end of June. The oil price fell as concerns increased that the weaker global economic growth environment could undermine OPEC attempts to stabilise the oil price going forward, notwithstanding the Iranian attack on Saudi oil refineries during the period.
The gold price rose 4.5% to $1,472/oz during the period on strong ‘safe haven’ demand and declines in the opportunity cost of holding gold as global interest rate expectations fell sharply. Sterling weakness ensured the gold price rose by more for UK based investors (+7.9% to £1198/oz).