Market Commentary: May 2016

  • Insight

31 May 2016

Our monthly Market Insights report reviews the factors behind the performance of various asset classes and regions across the globe, and includes our assessment of the key themes to watch as well as a brief summary of our current views.

Global Market Roundup


Fixed Income

In April, investor sentiment continued to improve after the market shock at the start of the year.  This was helped by supportive central banks and firming commodity prices.  Despite the failure of OPEC to agree an oil production freeze, reducing US stockpiles put upward pressure on oil prices.  The increasing risk-appetite translated into greater flows into the riskier areas of fixed income.  Global high yield bonds performed well with a return of 3.4%.  This was led by strong returns from the US market which had previously been hurt by the high energy exposure (shale in particular).  Emerging Market debt also performed well with a return of 2.8%.  The sector continued to be supported by a more moderate policy stance from the US Federal Reserve.  By contrast, UK gilts which are typically seen as a safe haven asset lost 1.2% over the month.

Key Themes:  Normalising US and UK monetary policy to increase bond volatility.
Our View: Focus on corporate and high yield bonds.  Gilts look expensive.


UK large cap returns continued to benefit from firming commodity prices in April.  Brent crude oil continued to improve from its low of $30 per barrel to nearly $50 despite the failure of OPEC to agree an oil production freeze.  Metals prices benefited from strong Chinese trade data in particular. Helped by the considerable Energy and Basic Materials exposure, UK larger companies returned 1.4% over the month.  By contrast, mid-cap companies lost 0.3% due to property tax changes and ongoing uncertainty over the upcoming European Union referendum.  The vote was found to impact capital expenditure as business managers delayed spending decisions.  However Sterling strengthened over the month, in a sign that ‘Brexit’ fears were beginning to abate.  The UK economy itself showed signs of slowing down with GDP growth falling from 0.6% quarter-on-quarter to 0.4% at the start of this year.  Over the month, the more domestically-focused smaller companies delivered 1.3%.

Key Themes:  Strong consumer sentiment against a backdrop of low inflation and increasing wages.  UK interest rate rises to be limited and gradual.
Our View: Positive on UK equities, especially those ‘close to the consumer’.


US economic growth almost ground to a halt in the first quarter.  However, GDP growth is expected to improve as the effects of falling investment in US shale and mining begin to wash out of the figure.  With an easy outlook for monetary policy and an improving oil price, the US stock market held up again over the month.  Larger companies returned 0.6% but smaller companies performed better with a return of 1.6%.  Cyclical stocks, such as Basic Materials and Financials, performed best.  By contrast, Telecoms and Consumer Staples underperformed along with Technology (due to disappointing earnings from companies such as Apple).

Key Themes:  US interest rate rises to remain gradual.
Our View: Favour US smaller companies in anticipation of further earnings improvement and help from currency effects.

European equities returned 1.6% over the month as the European Central Bank provided further guidance on its expanded quantitative easing programme and economic data pointed to continued regional recovery.  GDP for  the first quarter was shown to grow faster-than-expected at 0.6%.  France and Spain led the way, taking up slack from Germany, Europe’s largest economy.  Although unemployment across the one-currency bloc remained high, the figure fell again to 10.2%.  Price inflation was marginally negative again, reinforcing the case that the European Central Bank still had room for policy manoeuvre.  Sector-wise, the Energy sector outperformed again in the face of improving oil prices and Technology had the worst performance.

Key Themes:  Extensive monetary stimulus from European Central Bank.
Our View: Favour large exporters that can benefit from a competitive Euro.

Asia Pacific/Emerging Markets

Emerging Markets were down a marginal 0.1% whilst Developed Markets returned 0.9%.  Performance between different regions was varied though.  Latin America performed best with Brazilian stocks leading the way.  Political change was afoot in Brazil as parliament’s lower house voted to impeach the President.  Despite disappointing economic news, such as rising unemployment and falling retail sales, Brazilian stocks returned 7.5%.  This was supported by improving commodity prices as well as the prospect of new leadership.  Emerging Europe also performed well with Russian equities returning 4.9%.  The strengthening Ruble, better pricing for energy exports and decree for state-owned companies to pay out 50% of profits as dividends, were all well received.  At the other end of the spectrum, Asian equities underperformed as Chinese data was not strong enough  to appease investors.  Chinese stocks lost 0.2% over the month.

Key Themes:  Potential capital outflows from Emerging Markets as the US raises interest rates.  Deep structural problems in Brazil.  China’s reform agenda.
Our View: Focus on companies with sustainable earnings.  Bias towards holdings that will benefit from the Chinese reform story and away from Latin America.


The Yen’s haven status has been a significant complication in Prime Minister Abe’s strategy to reflate the economy this year.  The move to negative interest rates in January was intended to devalue the currency and support the move to normal inflation.  However, with investors flocking to the Yen for safety during the turbulent start of the year, the currency strengthened considerably and reduced the competitiveness of exporters.  In April, the Bank of Japan was widely expected to expand its asset purchase programme to weaken the Yen or stimulate more bank lending via its loan support programme.  However, inaction from the central bank left investors disappointed.    Japanese stocks lost 0.5% over the month.

Key Themes:  Prime Minister Abe’s Three Arrows strategy for Japanese growth.
Our View: Positive on industries that will benefit from domestic growth-oriented reforms such as e-commerce, services to an ageing population and healthcare demand.

This information is obtained from sources considered to be reliable, but its accuracy and completeness is not guaranteed by Anderson Strathern Asset Management Limited.  Neither the information nor any opinions expressed constitutes financial advice.  Investments can fluctuate in price, value and/or income and may return less than the original amount invested.  Past performance is not necessarily a guide to future performance