Investment commentary, May 2017
Markets delivered again in May with both equities and fixed income assets generating attractive gains for investors. UK equities rose 4.6%, global equities were up 2.5%, while UK government bonds returned 1.1%.
The eyes of Europe focused on France, and the French general elections. The second and final round of voting came down to a choice between the centrist (and pro-European candidate,) Emmanuel Macron, and far right candidate Marine Le Pen.
In the end, the result was a comfortable victory for Macron and this helped spark a strong rally for European assets and the euro. European equities rose an impressive 5.4% and led the way among the main developed equity markets.
By contrast, it was a more difficult month for the US and there has clearly been a reassessment of the likelihood that Trump’s tax and infrastructure plans come to pass. In addition, waning inflationary pressures have pushed back expectations of further interest rate rises by the US Federal Reserve, and rate sensitive sectors like financials have struggled.
With US equities trading at a premium to other markets, we are starting to see signs that non-US markets are playing catch-up.
Within fixed income markets, bond yields fell leading to gains from the asset class (bond prices react inversely to yields). UK government and corporate bonds outperformed cash by around 1% in May, while global fixed income asset classes benefited from the weakness in sterling seen over the month.