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9. March 2016 23:16
by Irene
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February 2016 - Market Commentary

9. March 2016 23:16 by Irene | 0 Comments

It has been another eventful month – stock markets were down -7.2% (MSCI World Index in GBP) during the first half of the month, only to recover part of that at the later rally, the UK Prime Minister came back from Brussels with an EU deal to hold a referendum in June, and oil went down -22.0% (to $26.21) mid-month to finish at $33.75 per barrel and approximately flat for the month. From a macro-economic point of view, many countries are slowing down slightly, but the expectation for central bank intervention in Europe and Japan has increased again, offering some hope for investors.

United Kingdom

The FTSE 100 gained from the occurring Brexit fears and specifically internationally oriented and commodity and energy related companies gained on the back of it. It finished 0.9% up for the month. Amid the Brexit fears, the pound fell 1.7% against the US Dollar to its lowest level since 2009. The polls suggest that the vote will be close and this has contributed to volatility in UK asset prices.

Europe

The Eurozone faced some headwinds over the month. At first there was the question of how strong European banks are, with Deutsche Bank taking the lead in terms of negative headlines; Spain is having trouble to create its government, with potentially new elections in June; and inflation for the Eurozone came in at -0.2% for February. On the other hand, the Eurozone expanded at its fastest pace in 2015 at 1.5%. This did not help equity markets with the Euro Stoxx 50 loosing -3.2% in EUR (-0.7% in GBP) over the month. There is now a high expectation for Draghi to announce additional quantitative easing at the next ECB meeting on 10 March.

United States

In the United States, the Presidential race has fully and clearly arrived with a run for Presidency between Clinton and Trump looking fairly likely. Macro-economic releases in the US reinforced fears of a global slowdown with a decrease in consumer confidence, a slow-down in housing with housing starts declining, although the labour market data remained robust. The current volatility in markets coupled with a slow-down in a few parts of the world has pushed out expectations for the next rate rise in the US.

Asia and Emerging Markets

The Bank of Japan’s move to negative interest rates at end of January resulted in foreign investors selling stocks as doubts over the success of “Abenomics” outweighed the fundamentals. Both the Yen and the Japanese stock market fell. Emerging Markets as a whole fared better than Developed Markets with the MSCI Emerging Markets index down -0.2% in USD (2.1% in GBP), whereas Developed Markets equities (MSCI World) lost -0.7% in USD (1.5% in GBP). Expectations for stimulus measures in China contributed to a rally in commodity-linked stocks, making Brazil the best performing Emerging Markets country, up 6.3% in USD for the month. In Asia, Indonesia demanded that same title with a return of 5.8% for the month in USD.

Fixed Income

The volatility in equity markets has continued to benefit global government bonds. UK Gilts returned 1.4% in February and have generated a return of 5.4% year to date, definitely a good start to the year and a result of the more defensive positioning. Euro and US government bonds returned approximately 1% in their local currencies in February and around 3-3.5% year to date. High yield bonds had a comeback in February, after the sell-off in the first half of the month, but both Euro and US High Yield finished approximately flat for the month. There was a similar behaviour for Emerging Markets bonds, which gained around 1% in February in USD (3% in GBP).

Market Returns Overview



Source: Markit, Twenty20 Investments, as of 29 February 2016, all returns in GBP.

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