Market Commentary – May 2017
- During May global equity markets rose +2.2% (USD terms, +2.7% AUD) with significant strength in Europe (+4.8%), Korea (+8.1%) and Japan (+3.0%) whilst Emerging Markets (EM) ex Asia (-1.0%), China (+0.7%), India (+1.8%) and the U.S. (+1.3%) lagged.
- Global sector-wise Utilities (+5.4%), Telecommunication Services (+3.3%), Information Technology (+4.8%) and Consumer Staples (+4.6%) outperformed whilst Energy (-1.6%), Materials (+0.2%) and Financials (+0.0%) underperformed.
- Global factor-wise stocks with high Profitability/Growth & low Volatility characteristics (e.g. Bond Proxies & expensive Defensives) outperformed those with low multiples (e.g. Financials & Resources).
- Ongoing political controversies continue to cast doubt on U.S. President Donald Trump’s ability to pass legislative reform. Against a backdrop of softer economic data, prospectively tighter monetary policy and easing long-term growth expectations (10Y Treasuries -8bp, DXY -2.1%), U.S. equities, particularly growth sensitive cyclicals, underperformed.
- French reformist Emmanuel Macron claimed 68% of the vote over far right candidate Marine Le Pen in the French presidential runoff, revitalising Franco-German relations and bolstering support for the E.U. Receding political risk premiums and a strengthening macroeconomic recovery propelled European equities and currencies higher (EUR +3.3%, NOK +1.7%, DKK +3.2%, SEK +2.1%).
- Following the impeachment of Korean President Park Geun-hye in March, reformer Moon Jae-in was elected president, rousing optimism for shareholder friendly chaebol reform. Across Asia, robust corporate earnings momentum and improving risk appetite buoyed equities more broadly.
- EM ex Asia was dragged lower by concerns around the sustainability of Brazil’s economic recovery as a widening corruption scandal enveloped President Temer, whilst Russian equities succumbed to falling energy prices.
- OPEC’s agreement to extend (but not deepen) production cuts failed to offset continuing concerns around record high U.S. crude inventories and a resurgence in U.S. shale production. Oil declined -2.5%.
- Major contributors to performance included our European Recovery (e.g. Telecom Italia), Korean (e.g. Hyundai Motor), EM Consumer (e.g. Jiangsu Yanghe Brewery) and U.S. Natural Gas (e.g. CONSOL Energy) exposures whilst our Low-cost Oil (e.g. Inpex) and short exposures detracted.
To find out how Antipodes has positioned itself in global markets, read our May fund update.