Perspectives Global Equities
Economic and market comments
After a difficult start to the year, global equity markets were up over the second quarter, shrugging off negative sentiment caused by political uncertainty around a Eurosceptic government in Italy and worsening trade relations between the US and China. The developed market MSCI World Index returned 3.8% in local currency terms. Emerging market equities did not fare so well, with the MSCI Emerging Markets Index down 3.4% in local terms as protectionism and a strengthening US dollar proved to be significant headwinds.
A shift in monetary policy was triggered by both the US Federal Reserve (Fed) and the European Central Bank (ECB), as the Fed raised its benchmark interest rate by a quarter of a percentage point and the ECB announced that its quantitative easing programme would be discontinued by the end of the year. In the UK, apprehension around Brexit continued, as following the EU summit, leaders of the bloc suggested that there may be a ‘no deal’ exit if issues such as the Irish border are not resolved.
Sector wise, a reversal of fortunes from the previous quarter saw energy (+12.9%) lead the way in Q2 on the back of a surge in oil prices, knocking technology off the top spot. Technology (+5.9%) and consumer discretionary stocks (+4.2%) also lifted the market higher, while a rotation into more traditionally defensive areas late in the quarter supported healthcare (+2.9%) and utilities (+2.7%). On the other hand, industrials stocks (-2%) were hit by trade war fears, while telecoms (-2.6%) and financials (-4.1%) were also in negative territory.
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