World markets ended largely flat in May (dollar terms). Concerns over US protectionist threats, rising bond yields, softer macro data in Europe and geopolitical risks offset strong earnings growth.
- Turmoil in Italy fanned fears of a renewed crisis in the eurozone, sending global markets sharply lower at the end of the month, with safe-haven US Treasury bonds rallying
- The US was the best performing region over the month, with strong data across the board and saw record profits delivery for Q1
- Risk-off sentiment contributed to a significant rise in the value of the US dollar, whilst oil prices hit $80/barrel for the first time since 2014
- From a sector perspective, markets seemed unperturbed by the pick-up in volatility with cyclical sectors dominating returns
- Value underperformed across all regions, with quality and momentum leading.
- Theme: Emerging markets: “Taper tantrum” déjà vu? Market narratives have fixated on an EM currency crisis in recent weeks, with US yields rising and a resurgent dollar
- EM economies with current account surpluses have weathered the storm, those with current account deficits were worst hit
- Turkey has been at the centre of the rout, but Argentina, Brazil and Indonesia, have also been hit
- There are some similarities to market dynamics of 2013’s Taper Tantrum, however, current account deficits for emerging markets overall have meaningfully improved, especially in North Asia
- Sustained global growth and improving corporate fundamentals should continue to support emerging market equities
- Short-term headwinds are coming from threats to trade, dollar strength, rising US yields and idiosyncratic risks. There are areas of vulnerability, so being selective will become even more pertinent.
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Where past performance is referenced, please note that this is not a guide to future performance.