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THE INVESTOR CENTRE
THE INVESTOR
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E
quities declined in January, in
developed and most emerging
markets. Developed equities got off
to an abysmal start to the year as
risk-aversion pushed investors into
safe-haven currencies, bonds and
gold. Eurozone equities were down,
despite dovish comments from the
ECB suggesting a willingness to
further expand monetary easing.
Emerging market equity performance
was poor in January, with significant
losses in Greece, Egypt and China.
The latter experienced highly volatile
equity markets, with trading being
called off by the regulator. Concerns
of a Chinese slowdown were
confirmed by weak manufacturing
data that missed forecasts.
Developed equities remained
negative in February.The weakness
can be attributed to further volatility
in the energy markets and continued
investor risk-aversion. Eurozone
equities trended down, despite solid
eps and sales growth that increased
12% and 6% respectivelyYOY.There
were significant losses in Greece, the
Czech Republic and India.Greece
officially fell back into recession as
capital controls hurt domestic
companies.
G
ilt yields fell and the differential
between short- and long-dated
yields compressed as 2016 began,with
an equity rout that pushed several
markets, including the UK’s, into bear
territory.The economy grew by 0.5%
inQ4.Annual growth of 2.2%, though
lower than the 2.9% recorded in 2014,
will likely keep the UK among the
fastest-growing developed economies.
The monetary policy outlook remains
dovish, however.The BoE cut its
growth and inflation forecasts in
response to a gloomier global outlook.
As the outlook for the global economy
weakened,markets began to price in
the possibility of a cut in interest rates
before year-end.
The announcement of the date of the
referendumon the EU had a muted
effect on gilts, although sterling came
under growing pressure. Sterling
slumped to a seven-year low and
weakened against other currencies as
the Brexit campaign gathered pace.
Ratings agencyMoody’s cautioned that
a Brexit would risk the UK’s credit
rating, but noted as positive the early
referendum,which avoids a lengthy
period of uncertainty.
Nimish Patel and Eleanor de Freitas
BLACKROCK
Core manager: Global Equity
Divergence between strong services
and weak manufacturing sectors
BLACKROCK
Index Linked Gilts
Early referendum date has avoided a
long period of economic uncertainty
Eurozone equities
downdespite dovish
comments fromECB
The Brexit referendum
announcement had
amuted effect on gilts
Francis Rayner
T
he UK stock market had a poor
start to 2016 as signs of slowing
economic growth in China led to fears
of a wider slowdown in growth.
Central banks responded by loosening
monetary policy further, leading to
lowered expectations for interest rate
rises in the UK and the US.The UK
referendum on EUmembership was a
likely contributory factor to significant
weakness in sterling and
underperformance of domestically
focused UK companies.
The quarter proved challenging for
fund performance.Detractors included
Capital &Counties Properties,
following Central London property
market weakness, and Next after it
confirmed lower than expected sales.
In a reversal from last year, resources
companies rose strongly and were a
headwind to performance given the
fund’s underweight exposure. Positive
contributions came from companies
that have demonstrated consistency in
earnings growth:RELX,Compass and
Reckitt Benckiser all outperformed.
We expect the global economy to
grow slowly and therefore focus on
companies able to determine their
future rather than relying on a specific
macro outcome.
BLACKROCK
UK & General Progressive
RELX, Compass and Reckitt Benckiser
all reported strong results
Banks loosen
monetarypolicy as
global growth slows
Luke Chappell