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07/05/20193 mins

Monthly Commentary – April

The world’s equity markets sustained their strong start to 2019, rising for a fourth consecutive month. Although uncertainty persists over the health of the global economy, investors took heart from a generally positive start to the earnings season – confounding some downbeat expectations. Meanwhile, there was growing optimism that the US and China would be able to strike a trade deal. Despite President Trump’s claim early in the month that an “epic deal” – “the Grand Daddy of them all” – was a strong possibility, a concrete agreement has yet to emerge. Nonetheless, signs that the Sino-US discussions were on track provided a boost to sentiment.

Meanwhile, the oil price continued to strengthen, taking its year-to-date gain to 35%. Its strongest start to a year in decades, according to some. Upward pressure on the price came from the US decision to end Iran’s oil waivers and from disruption to supplies from Russia.

In equity markets, the strongest regions were Europe and North America, helped by some economic data that showed improvement. Italy emerged from recession and the US delivered surprising strong first quarter GDP growth. The latter was especially striking given the bad weather and government shutdown at the start of the year. Latin America was the main laggard, just managing to eke out a positive return. This came as Brazil’s much anticipated reform agenda remained mired in the legislative process. Despite a strong start to the month on hopes of a US/China trade deal, Asia (ex Japan) was also a laggard, held back by fears that Beijing might dial down its recent programme of monetary stimulus.

Cyclical sectors held a significant lead over defensives as investors continued to display the confidence that has characterised the year so far. The best returns came from financials, helped by a steeper yield curve. This reverses the inversion (often a signal of looming recession) that had caused concern in March and boosts banks’ lending margins. Information technology also had a strong month, as did consumer discretionary. Healthcare was the weakest sector, not helped by Bernie Sanders’ proposal of a ‘Medicare for all’ bill – a plan endorsed by four of his rivals for the Democratic presidential candidacy in 2020.

With the financial sector to the fore during the month, Standard Chartered was one of our best performing stocks, rising by more than 18%. The company is an emerging markets focused bank that has undergone an extensive restructuring since the arrival of a new CEO. We bought our position in early 2016 when sentiment was at a nadir. Since then, the company has steadily improved its returns and strengthened its balance sheet, allowing the resumption of dividends last year and, during the month, a $1 billion share buyback. Not so long ago, Standard Chartered was greatly out of favour with investors. However, as longer-term trends were looking more positive, we saw an opportunity for it to defy gloomy expectations. This encapsulates our contrarian investment approach.

Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.

Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this article should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.

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