Blair Campbell, MitonOptimal International (Guernsey)Markets continued in a similar manner in March as investor attention focused on the pace of recovery as economies begin emerging from societal lockdowns alongside vast stimulus packages being implemented and the prospective inflationary implications.  Against this backdrop, equity markets were broadly positive, the MSCI World Index, the gauge for developed markets, returned 3.4% over the period.  Value and cyclical stocks outperformed growth-orientated sectors, continuing the trend established in the final stages of the 3rd quarter last year when investors started betting on the ‘reflation trade’ – the MSCI Global Value Index returned +5.8% in March whilst the MSCI’s Growth equivalent returned +0.9%.  Emerging Markets were mixed with US Dollar strength proving to be a headwind resulting in the broad MSCI’s Global EM Index falling 1.5%.  All performance figures are total return in US Dollars.

In the US, President Biden signed into law the highly anticipated $1.9 trillion relief package bill providing payments of $1,400 direct to most American adults, along with extensions to unemployment support measures.  Further fiscal support was also announced with a proposed $2 trillion being made available for infrastructure projects.  Purchasing Managers Index (PMI) Composite data indicated the US recovery is on a strong footing: the reading of 59.7 is the fastest upturn in private sector business activity since August 2014.  With employment numbers also sharply positive in March the US recovery looks on track.  Accordingly the S&P 500 Index gained 4.4% over the month.

European equity markets were firmly in the black over the period.  Positive economic data releases were somewhat at odds with the current societal situation, which has seen lockdown restrictions maintained or reintroduced and individual countries’ vaccination programmes are still far behind that of various other regions.  Nevertheless, the Eurozone’s March Composite PMI reading of 53.2 signalled a healthy expansion with the manufacturing component’s 62.5 reading indicating the sector’s largest improvement in 24 years.  Although the services component’s 49.6 print represented a contraction in activity (a reading below 50) it was the highest reading in 7 months.  Europe’s MSCI Index added 6.6% in local currency terms.

In contrast to the majority of Europe, the UK’s vaccination programme continues to be, at this stage, a success with over 26 million people having had their first vaccine dose – over 50% of the adult population.  In combination with the current restrictions in place, infections – and more importantly hospitalisations and deaths – have been steadily falling, allowing Prime Minister Johnson’s ‘road map’ out of lockdown to continue unabated in March as some restrictions were eased during the month.  In economic news, the UK’s latest GDP data confirmed an expansion of 1.3% in the final quarter of 2020, which means the economy shrunk by 9.8% over the year.  The UK equity market, as measured by the FTSE All Share Index, climbed 4.0%.

Inflation expectations persisted over the month and government bond yields consequently rose, particularly in the US where the yield curve steepened – the benchmark US 10 year Treasury finished the month yielding 1.74%, an increase of 34 basis points (bps).  In Europe, however, government bond markets were little changed, with the 10 year Gilt yield up 3 bps and the 10 year German Bund falling 3bps.  Thanks to their favourable combination of higher coupons, lower duration (interest rate sensitivity) and growth-focused issuer base, High yield indices were up in March, with the BofA/Merrill Lynch HY indices returning +0.5% and +0.2% for their respective Euro and US Dollar indices.

Source of all data: Bloomberg. The content of this article is for information purposes only and does not constitute an offer or invitation to any person. The opinions expressed are subject to change and are not to be interpreted as investment advice. You should consult an adviser who will be able to provide appropriate advice that is based on your specific needs and circumstances. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable and given in good faith, but no representation is made as to their accuracy, completeness or correctness.


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