The FTSE showed a gain of 5% over February and the MSCI world index was up by 4.3% over the same period while global government bonds remained flat.
In the UK, gains in the FTSE were encouraging and markets welcomed the news that the Bank of England has upgraded its expectation of growth this year to 3.4%, which would represent the strongest period since 2007. Market gains have been further supported by strong rallies in the housing market with the rest of the UK starting to follow London’s lead. Despite unemployment falling to 7.1%, Mark Carney confirmed there would not be imminent interest rate rises despite the target rate of 7% expected to be reached in the coming months.
Elsewhere in Europe, recently released final GDP figures for the 4th quarter of 2013 showed an improvement for the majority of European economies and revealed Italy has finally exited recession. Despite this encouraging outlook, bank lending remains tight and availability of loans to the private sector remains subdued. However, it is expected that the European Central Bank will soon loosen lending conditions in an effort to increase inflation which is currently threatening the Eurozone’s fragile recovery.
In the US, the S&P 500 showed similar gains to the FTSE of 4.6% over the month of February. Market confidence continues to grow and a pick-up in M&A activity has been encouraging. Perhaps most notably, Facebook’s purchase of the mobile messaging company WhatsApp for just over £11bn gained widespread media coverage. Despite a significant pick up in the economy it looks likely that interest rates will remain low, even once the Federal Reserve’s target of 6.5% unemployment is reached, which currently stands at 6.6%.
China remains an area of concern with growth slowing as its economy switches focus from exports to domestic consumption. The 12th five year growth plan for 2011-2015 had set an annual growth target of 7% per year. With 2011 and 2012 figures significantly above this target, it is perhaps reasonable to expect a degree of decline given the sheer size of the economy.
Many emerging markets, particularly those in Asia finished the month up. However, tensions between Russia and Ukraine caused a spike in oil prices and sharp drops in markets worldwide. Tensions do now seem to have eased somewhat and markets have recovered well.
Recently released figures from Japan show that economic growth slowed from 4% in the first half of 2013 to approximately 1% in the second half of last year. Further to this, a recent flow of weak economic data has cast doubts over Japan’s growth. The Tokyo Stock Exchange is down this year, however did show gains in February, going some way to recovering from the sharp falls experienced in January.
Outlook
We remain positive on equity markets in the medium term and recent worldwide economic data is painting an increasingly positive picture as the global recovery continues. Despite this, we can still expect set-backs along the way, with the recent tensions in Eastern Europe offering an example of how worldwide events can effect global economies. Despite easing tensions, we will continue to monitor the situation in Russia and Ukraine and will react swiftly to any market sensitive news.
The slowing of growth in China and Japan will remain a concern throughout 2014 and could have a negative impact on smaller emerging markets.
Developed markets appear to be reacting well to the continued tightening of monetary policy in the US. This bodes well for US equities which we remain positive on and expect to perform well in the medium term.
Europe will be closely monitored and any loosening of monetary policy could provide a buying opportunity for European equities.
Please note, our Investment Commentary is our view of markets and does not constitute investment advice. Past performance is not necessarily an indication of future returns; the value of investments and any income from them is not guaranteed and can fall as well as rise. If you would like investment advice on your individual circumstances, please do not hesitate to get in touch.