This month’s market commentary looks back at February and more recent events that have transpired along with some of the key considerations.
Major Equity markets rise again on sector rotation
Equities turned in another positive month across the major markets in February. Among the global market sectors, leadership moved from technology to financials, as investors switched their focus from growth to value. Banks performed especially well during the month. The rally in value stocks wrong-footed many active funds, which tend to invest primarily in growth stocks, as these are usually at the forefront of market rises.
Bond yields spark fears of rate rises
Bonds across the world suffered a very poor month, with yields rising in all sectors of the bond market. A continued recovery in oil prices, coupled with the ongoing vaccine roll-out and anticipation of the end of Covid restrictions led investors to sell bonds, which yield little or nothing (less than nothing in the case of some government bonds). As the 10y US Treasury yield reached 1.4%, equity markets were spooked, and saw increased volatility, as investors feared rate rises later in the year.
Sterling strength continues on recovery hopes/vaccine roll-out
The pound continued its rally against other major currencies, that started in the run-up to the Christmas Eve Brexit trade agreement. This was supported by the continued strong roll-out and uptake of the Covid-19 vaccination programme, which is one of the most advance in the world in terms of percentage of the population vaccinated. The currency was also supported by the low inflation rate in the UK, though there are fears that this will rise as the year progresses; Year-on-year comparison data will be distorted by the decline in economic activity seen in Spring 2020.
Emerging markets strong again
Emerging markets saw another strong performance in February, as investors continued to look to those emerging economies as most likely to be able to grow their way out of debt faster than the developed world. Whilst China saw a flat performance on the month, India was a highlight, with the Nifty 50 gaining more than 6.5%. The strength of the dollar is set to become more of a headwind for emerging markets, if it continues, though commentators do not generally expect this at present.
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Mahfooz (Maz) ShamsuddinDirector & Chief Information Officer