Market Perspectives - Quarter 2 2015

• Equities worldwide registered a small positive return over the second quarter. Regional performances were mixed with strong gains from Japan while the Eurozone and UK were weak.

• Eurozone and UK equities came under pressure as the Greek debt crisis escalated, leading to concerns over the potential knock on impact if Greece were to leave the Eurozone.

• Emerging markets achieved modest gains but the emphasis is now on Chinese equities and the reaction of the monetary authorities.

• Bond yields rose across most major markets amid expectations that interest rates could rise in the US and potentially in the UK this year.

Market Commentary Q2
Equity returns in Q2 were mixed but overall in modestly positive territory, and bond markets have been influenced by anticipation of an interest rate rise by US Fed. That much-awaited decision seems to be postponed until the end of this year as the American economy underperformed in the first part of 2015. On the other side, the European Central Bank (ECB) and Bank of Japan (BoJ) continue flooding the markets with liquidity resulting in modest growth in those regions and a supportive climate for equities. The last quarter saw periods of strong performance of the EU and Japan, despite significant structural rigidities (especially in Europe), high debt levels and low productivity growth. This trend in Europe however was worsened by Greece balancing on the edge of bankruptcy. A possible ‘Grexit’ would represent a significant risk to equity markets in the short term. After stagnating, the UK market now appears more attractive; the outright win of the Conservative party at the General elections removed uncertainty and the market improved as a result of that. Emerging markets stories have been dominated by China and its economic slowdown caused by weak housing and construction, falling exports and price deflation, which forced Chinese authorities to loosen their monetary policy. We should be aware of further major corrections to come and pay greater attention towards China in the next few months.

Market Outlook
In the next quarter, UK equities appear to be a reasonable choice especially in light of underperformance of some of the developed markets in the past few months. Less systematic risk than in Europe and reform-minded authorities should be encouraging for the UK economy. European equities remain somewhat cheap and there may be a buying opportunity as the QE programme continues. This would not come without the risk, which is primarily related to the possibility of a Greek exit from the Eurozone. In Japan the growth forecasts for the next quarter look optimistic. Stimulating policy deployed by the BoJ seems fruitful and together with a weak Yen, the Japanese economy is on the path towards stronger growth. On the other side, in the last months the underperforming American economy seeks recovery. Still, US equities remain expensive in general, especially when compared to their counterparts elsewhere in the world; the Fed’s policy will be a decisive factor for the US. Emerging market equities look attractive but one should pay attention and differentiate low and high quality assets. The question of how China will respond to its economic slowdown also brings uncertainty into these markets. Times are still not getting better for bonds especially due to loosening monetary policies and extra levels of liquidity. We believe that a selective approach should again play a key role, whilst seeking opportunities at places that look attractive such as European and UK equities.

Region/ Asset Class


To June 30th 2015




Global Equity

MSCI World





MSCI Europe





Nikkei 225




Emerging markets





United States

S&P 500




United Kingdom

FTSE All Share




Global bond

Barclays Global Aggregate









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