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09/04/20193 mins

Monthly Commentary – March

Global equities advanced in March, with the weakness of the Brexit-battered pound enhancing returns for sterling-based investors. Currency effects aside, the main factors in the month’s positive performance were the prospect of interest rates remaining ‘lower for longer’ and hopes of a trade deal between the US and China. These factors allowed markets to overcome concerns around the health of the global economy – concerns that were stoked by China lowering its full year growth target and a slew of underwhelming economic data elsewhere.

The economic outlook did attract a lot of attention, however. Much news coverage was given to an ‘inversion’ in the US yield curve as yields on 3-month government bonds briefly rose above those on 10-year government bonds. An inverted yield curve is widely viewed as a reliable predictor of economic downturns, although it is more commonly measured by the difference between 2-year and 10-year yields.

North American markets were among the month’s best performers, helped by dovish comments from the Federal Reserve. The US central bank kept interest rates unchanged and indicated that they would not rise in 2019. Indeed, the options market is now pricing in a rate cut at some point this year. Asian markets were strong too, on optimism that China and the US would be able to resolve their trade hostilities – although any concrete advances are yet to materialise. In the UK, the Brexit process rumbled on interminably without any real progress, but the market was aided by its high international exposure; a weaker pound typically boosts overseas revenue for UK domiciled companies. As in February, the weakest returns came from Latin America, where a ratings agency marked down Mexico’s creditworthiness, denting hopes that the newly appointed president, known as AMLO, will be able to revive the economy. Meanwhile, Brazilian equities slipped after Michel Temer, the former president, was arrested on corruption charges.

Given the worries about the economic outlook, economically sensitive sectors underperformed. These included industrials and financials, with the latter particularly affected by the prospect of lower interest rates. The strongest sector was real estate, which responded favourably to falling bond yields. Cautious sentiment during March was reflected among defensive sectors, such as consumer staples, which performed well too.

Also among the month’s strongest performers were gold mining companies. Gold itself has been lacklustre for several years but has experienced a nascent revival in the last six months, amid a volatile political and stockmarket environment. We have investments in several gold miners, including Newcrest Mining, Newmont Mining and Barrick Gold. These companies have caught investors’ attention recently as the sector undergoes a renewed wave of mergers and acquisitions. This consolidation makes a lot of sense: the gold industry is still highly fragmented compared with other mining sectors. We see opportunities for these companies to benefit from a recovering gold price and more efficient operations while delivering growing dividends to shareholders.

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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