Market Perspectives - Quarter 1 2015
Market Commentary Q1

In the first quarter of 2015 the US stock market began to lag behind after a 5-year bull market. This poor performance can primarily be explained by the strengthening of the US dollar and weak wage growth, which resulted in a slowdown of the US economy in the 1st quarter. The Federal Reserve (FED) responded by postponing monetary tightening for the end of 2015 whereas the European Central Bank (ECB) and the Bank of Japan (BOJ) continue printing up to $140 billion combined each month and thus creating an excess of liquidity in the markets. The bond yields are shrinking in such an environment and therefore equities come into play enjoying a great run since autumn 2014. In comparison to historical prices, equities have become relatively cheap, especially the European offerings which are virtually half price of their American peers. Risk associated with low prices of European equities might be attributed to geopolitical uncertainties stemming from Russian sanctions and Greek unwillingness to pay their debt off. Nevertheless, Europe as well as Japan represents great potential for future growth due to the weak currency, easing of monetary policy and permanent fall in energy (primarily oil) prices. Emerging markets were predominantly hit by this decline too, especially Russia, in light of imposed sanctions, suffering from a drop in the availability of credit. On the other hand India is becoming a prime mover of developing markets experiencing moderate growth, decrease of inflation as well as interest rates, and enjoying benefits of cheap energy and very positive demographics.

Market Outlook
Going forward, the markets will be influenced by the UK elections taking place in May which could bring short-term uncertainty into an otherwise well-performing and steady UK equity market. Higher volatility stemming from UK election in May 2015 should be mitigated by the FED’s postponement of the rise in interest rates to September 2015. The strength of the dollar, low oil prices and a hike in interest rates represent the prime headwinds to US performance in the next quarter suggesting a significant outflow of money towards Europe and Japan where higher returns due to positive economic forecasts are expected. Bonds after steady performance in 2014 are losing their attraction and as a result prices are expected to fall. Therefore bonds should play a minor role as a ‘portfolio diversifier’, being ready to change according to oncoming circumstances. With both of the traditional asset classes struggling to generate good risk adjusted returns, we are looking to find alternative investments which provide a similar risk profile and hopefully similar returns, given our views on US equities and government bonds.

Region/ Asset Class

Index

To March 31st 2015

Month

Q1

YTD

Global Equity

MSCI World

-0.76%

5.00%

5.00%

Europe

MSCI Europe

1.38%

11.74%

11.74%

Japan

Nikkei 225

2.02%

10.06%

10.06%

Emerging markets

MSCI EM IMI

0.13%

4.95%

4.95%

United States

S&P 500

-2.19%

0.95%

0.95%

United Kingdom

FTSE All Share

-1.57%

4.67%

4.67%

Global bond

Barclays Global Aggregate

-0.56%

-1.92%

-1.92%

Gold

S&P GSCI Gold

-2.16%

-0.23%

-0.23%

* Gross return, local currency. Source: FE Analytics.