Global financial markets gain further ground

Positive start to the year continues in February

2 minute read

Global equities gained further ground in February, recouping more of the losses suffered in the final quarter of 2018. The two main catalysts for the rally that began in January – the Federal Reserve's decision to keep interest rates on hold and optimism over a breakthrough in Sino-US trade talks – exerted further influence in February.

However, sentiment turned more cautious in the final week of the month due to mixed economic data. While the US economy grew by a faster than expected 2.6 per cent in the fourth quarter of 2018, Chinese factory production weakened for the third consecutive month. Rising global geopolitical risk including heightened tensions between India and Pakistan and downbeat comments by a US trade advisor further dampened spirits.

The MSCI World Index of global equities returned 3.39 per cent in local currencies, which equated to a 1.92 per cent return in sterling terms. The index has gained 10.91 per cent over the year so far in local currencies terms, having lost 13.04 per cent in the final three months of 2018. All of the major markets delivered positive returns in February.

European equities were among the strongest performers, with the MSCI Europe index rising by 3.65 per cent in local currency terms despite some disappointing economic data. Euro zone manufacturing activity went into reverse for the first time in more than five years. Meanwhile Italy fell back into recession at the end of 2018, with Germany narrowly avoiding a similar fate. However, Germany’s weakness largely reflects setbacks in the auto industry, with retail sales in the country rebounding in January.

The S&P 500 Index returned 3.21 per cent in US dollar terms. The healthy economic growth figures and a delay to an increase in American tariffs on Chinese goods boosted sentiment. Technology and industrial stocks have been among the best performers on renewed optimism about the global trade outlook. Indeed,some of the technology stocks which fell heavily last autumn reached fresh highs.

Emerging markets were more subdued than other markets with the MSCI Emerging Markets Index gaining 1.11 per cent in local currency terms. The strong rally in China, the world’s worst-performing market of 2018, continued over the month. The expectation of further economic stimulus by Beijing and renewed hopes of an end to the trade war with the US supported Chinese equities.

Dissipating fears over global trade also lifted Japanese stocks, which ended the month 2.26 per cent higher in Japanese yen terms as measured by the MSCI Japan index.

Bond markets, both sovereign and corporate, experienced a mixed month. While American and European corporate bonds delivered positive returns, some government bond markets registered negative returns. Safe havens such as US treasuries and German bunds sold off towards the end of the month as the stronger-looking economic data helped assuage the worst of fears about a global slowdown. The yield on10-year US treasury bonds ended the month at 2.77 per cent, rising from 2.63 per cent at the end of January. Meanwhile, UK government bonds came under heavy selling pressure towards the end of the month reflecting the belief that the chances of a no-deal Brexit outcome had receded significantly so lessening the appeal of the security offered by gilts.

Important information

Past performance is not a guide to future performance. The value of an investment and any income from it may go down as well as up. You may not get back the original amount invested.

Except where stated otherwise, the source of all information is Aviva Investors as at 7th March 2019. Any opinions expressed are those of Aviva Investors and they should not be relied upon as indicating any guarantee of return from an investment in our funds.

Nothing in this article is personalised advice or a recommendation. If you need a personalised recommendation based on your personal circumstances, you should seek financial advice.

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