In this week’s Market Pulse, Chief Investment Officer Bernard Swords discusses tremors in equity markets caused by below forecast consumption figures and Delta variant concerns. Bernard reiterated the Investment Team’s view that we are transitioning from the recovery phase of the cycle into the expansion phase (growth rate still above trend but decelerating) which supports changes we are making to portfolios.
- We had tremors across equity markets as a something of a ‘growth tantrum’ hit us. The cause was Retail Sales figures missed in a few countries. Some of this would be due to consumption switching over to services and away from goods but the spreading of the Delta variant undoubtedly is having an impact as well. One important thing to bear in mind is that even though the figures may be coming in below forecast, the level is still very high. But it does show what can happen to market sentiment as we transition from the recovery phase of the cycle into the expansion phase (growth rate still above trend but decelerating). This supports what we have been doing in portfolios. Resetting the equity exposure to where we were at the start of the year, returns will be more muted going forward. But remaining overweight equities, the growth rate is still strong. Moving more into companies and sectors with more dependable growth, with less reliance on the cycle.
- What was encouraging last week was the performance of the bond markets. There was a big ramp up in discussion about tapering last week and the potential for an earlier than expected arrival of it. But bond yields declined slightly during the week. They were undoubtedly helped by the growth fears that pushed through markets but still it was a very resilient performance. For us that is encouraging. We knew that as the recovery gained traction the emergency monetary measures would have to be removed. We thought this would put fixed income markets under pressure but that they would remain orderly. This seems to be the way they are behaving.
- Developments in China grabbed a lot of attention during the week and continue to undermine Emerging Markets and Asia Pacific in particular. Month to date, MSCI Asia Pacific ex Japan is down 7% in $US terms against the world which is up slightly.
