THE INVESTOR CENTRE
THE INVESTOR
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31
E
quity markets were revived in October,
following torrid conditions in the third
quarter. In November, the FTSEWorld Index
rose by 1.93% in sterling terms, although
much of that gain was due to a strengthening
in overseas currencies versus the pound.
The main theme for markets was
increasing divergence in the outlook for
monetary policy in the US and the rest of the
world, particularly the eurozone. O cials
at the European Central Bank expressed
concern that economic growth continued
to be lacklustre, commenting that more
stimulative measures might be needed.
Meanwhile, market participants tried to
gauge the timing of the rst round of interest
rate hikes by the Bank of England and the US
Federal Reserve.
In December, the US Federal Reserve’s
(Fed) much-anticipated rst rate hike since
2006 was announced, and an accommodative
approach was maintained in the UK and
expanded in the eurozone.The Fed’s decision
to increase rates by 25 basis points followed
further solid US jobs data, while its rate-
setting committee remained con dent that
in ation would return to the targeted level.
Later in the month, GDP growth was slightly
downgraded for the third quarter, to reach
2% on an annualised basis.
During the fourth quarter, developed
equity markets rose 5.62%while emerging
markets were more muted, up 0.73% in
US dollars.
B
ond markets continued to be heavily
in uenced by central bank policy.The
10-year gilt yield rose sharply from late
October on the increased likelihood of a rate
rise in the US, and then trended lower on
high expectations – which were ultimately
disappointed – of signi cant further
monetary easing in Europe.
The Bank of England’s (BoE) Monetary
Policy Committee (MPC) continued to vote
8–1 throughout the period to hold the Bank
Rate at the record low of 0.5% as the UK
slipped back into mild Consumer Prices
Index de ation from September.This was
in large part due to external factors such as
price falls in energy, food and other imported
goods.The MPC noted at its December
meeting that the renewed fall in oil prices
increases the likelihood that headline in ation
would remain‘subdued’.
Annual Retail Prices Index in ation
declined from 0.8% in September to 0.7%
in October. Sterling slipped to its lowest
level against the dollar sinceApril (below
$1.50), depressed by expectations of higher
US rates, while BoE governor Mark Carney
signalled that the UK interest rate may stay
at its record low for longer than previously
thought.The economy grew by 0.5% in the
third quarter.The unemployment rate fell
to 5.3%, its lowest level in more than seven
years; and employee earnings were 2.5%
higher than a year ago, excluding bonuses,
and 3% higher including bonuses.
Nimish Patel and Eleanor de Freitas
BLACKROCK
Core manager: Global Equity
Q4 saw rises in equity markets while
emerging markets struggled
BLACKROCK
Index Linked Gilts
Employment, earnings and the
economy all showed positive signs
Equities improved as
globalmonetarypolicy
continued todiverge
The bondmarket will
be strongly in uenced
by central bank policy
Francis Rayner
D
uring the fourth quarter, the UK stock
market began to recover – only then to
falter as global economic growth expectations
were revised down.The oil price also rallied
initially, before falling after OPEC’s decision
to maintain current production levels.
During the fourth quarter, returns were
driven by the recent purchase of Betfair
and through continued earnings delivery
from established positions in Compass, Sky,
AutoTrader and RELX. Betfair, which is
expanding its leading position in the growing
online gaming market through a merger with
Paddy Power, announced a strong increase in
pro ts at its half year. Detractors to relative
performance included easyJet, on concerns
around whether passenger growth may be
sustained given ight suspensions to Egypt
and following the Paris terrorist attacks.
Corporate activity impacted Shire with
rumours surrounding its pursuit of Baxalta
and an agreed purchase of US pharmaceutical
group Dyax.
Outside of the resources sector, corporate
earnings growth remains broadly positive.
However with the threat of ‘Brexit’,
potentially rising US interest rates through
2016 and low levels of global growth and
in ation, it will be important to di erentiate
between companies.We remain positive
on UK equities and highlight the ability of
fundamentally driven active management to
deliver investment returns.
BLACKROCK
UK & General Progressive
Actively managed UK equities should
continue to deliver positive returns
Markets stayvolatile
as global growth
expectations drop
Luke Chappell
