THE INVESTOR CENTRE
THE INVESTOR
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29
E
quity markets were mixed inApril,
with a number of developed regions
– including the US and Japan – nishing
the month at or in decline.The eurozone
struggled with the sustained worry that
Greece would not be able to meet its debt-
repayment deadlines.Markets rallied on
hearing of a change in Greek representation
after Prime MinisterAlexisTsipras’s
reshu e, but investors remain wary of a
Greek exit from the eurozone. In the US it
was revealed that rst-quarter GDP grew
at a rate of only 0.2%, leading investors to
speculate that the Fed will wait until Q4
2015 to hike interest rates. In May European
markets advanced, bolstered by reports that
the European Central Bank was temporarily
stepping up its stimulus programme.A
surprise Conservative majority in the UK
election prompted an equity rally as a lengthy
period of political wrangling was avoided.
Japanese equities also did well, helped by
better-than-expected GDP growth and
a weakening yen. By contrast,Asia Paci c
and emerging-market equities were weak
as investors looked ahead to the rst hike
in US interest rates. Fed chair JanetYellen
said rates were likely to rise later this year,
should the economy improve in line with
the central bank’s predictions.
V
olatility in global bond markets pushed
gilt yields higher fromApril as Greek
debt talks stalled and in ation expectations
resurfaced.The Bank of England (BoE)
held the interest rate at 0.5% throughout
the quarter. Bank governor Mark Carney
reiterated that the interest rate would need
to rise more gradually than in previous cycles
and remain below average historical levels for
some time to come.The UK slipped brie y
into de ation inApril (the CPI index fell by
0.1% on a year earlier) but returned to slow
price growth in May as the CPI edged to a
positive 0.1%.The RPI measure of in ation
increased from 0.9% inApril to 1.0% in May.
First-quarter GDP grew by a disappointing
0.3% compared with the previous three
months.This was half the 0.6% recorded in
the fourth quarter of 2014, and the weakest
reading since the fourth quarter of 2012. In
its May In ation Report, the BoE lowered its
growth forecast for the UK to 2.5% this year
from the 2.9% predicted in February. Gilts,
shares and sterling reacted positively to the
unexpectedly decisive election win for the
Conservatives in the May general election,
which confounded opinion polls that almost
universally pointed to no outright winner.
The market expects the rst rise from the
record-low 0.5% interest rate in mid-2016.
Nimish Patel and Eleanor de Freitas
BLACKROCK
Core manager: Global Equity
Poor US GDP growth could lead to
a delay in interest rate hike
BLACKROCK
Index Linked Gilts
When UK interest rates rise, they will
still be below historical averages
SurpriseConservative
majority inelection
promptedequity rally
Gilts, shares andsterling
reactedpositively to
electionwin
Francis Rayner
T
he surprise result of a Conservative
majority in the UK general election had
an unusually large impact on certain sectors
of the UK stock market. Notably, the reduced
likelihood of property and utility taxes
led to a short-term jump in these sectors.
Greek debt negotiations provided a source
of volatility in both bond and equity markets,
while market expectations are for US interest
rates to begin to increase later this year.The
fund underperformed during the quarter
as positions in Reed Elsevier, Compass and
Reckitt Benckiser fell in response to higher
bond yields.These shares have previously
been bene ciaries of investors’ search for
alternatives to ultra-low bond yields. EasyJet
fell as oil prices moved higher and strikes
by French air tra c controllers resulted in
cancelled ights. On the positive side, Next,
Wolseley and Sky reported strong earnings
growth and BG Group bene ted from the
agreed takeover approach from Royal Dutch
Shell. Eurozone economic activity is showing
signs of improvement, with sentiment
tempered by uncertainty around Greece,
while recent macroeconomic data from the
UK and the US continues to point to growth.
We believe this environment is suited to our
strategy of investing in a concentrated but
economically diversi ed portfolio of best
ideas, which aims to identify companies with
structural growth, and which can positively
impact earnings through their own actions,
regardless of market movements.
BLACKROCK
UK & General Progressive
Economic signs point to growth in the
US, the UK and eurozone
Next, Wolseley and
Sky reported strong
earnings
Luke Chappell
