Investment Comment June 2018

The US proved to be the outlier in global market performance during May, with the MSCI USA up 2.44% on the month. Markets in the UK (MSCI UK) and Europe (MSCI Europe) were weaker, down 0.83% and 0.64% respectively, with Asian markets (MSCI Asian), down 1.18% on the month. Emerging Markets (MSCI EM) experienced a challenging month, declining 3.54%.

In the UK, the Bank of England (BoE) kept interest rates at 0.5%, citing the easing of inflationary pressure as well as the recent slowdown in economic growth due to subdued consumer spending. However, BoE Governor Mark Carney remains confident that the overall UK economic climate looks little changed thus far and that poor growth data reflect a temporary soft patch. The 2.9% wage growth experienced in the first quarter, coupled with record high employment and recuperating consumer borrowing, support the Governor’s claims. UK Manufacturers recorded their 22nd month of growth since the Brexit vote, with the PMI index rising further to 54.4 in May, up from 53.9 in April which signals continued growth. The Halifax House Price index reported a sharp recovery in UK house prices during May, up 1.5%, following a 3.1% decline in April. Even with mortgage approvals softening over the past three months, interest rates remain low and mortgage affordability is at manageable levels, providing further support to UK house prices.

US employment growth exceeded expectations in May, bringing the US unemployment rate down to a record low of 3.8%; a level not seen since April 2000. Furthermore, US economic growth accelerated to the fastest rate in over three years in May according to IHS Markit data, reflecting strong demand from its large domestic market. Order book situations suggest that US growth is likely to continue to remain strong, in the coming months.

In the Eurozone, markets started to calm down after a month of uncertainty during the composition of the populist coalition government in Italy. Giovanni Tria, the finance minister of Italy, remarked that there is no discussion or proposal to exit the euro and that the government is determined to avoid the materialisation of market conditions that would lead to such a decision. Overall, the eurozone experienced widespread growth across the vast majority of sectors in May, with the exception of healthcare, which offset a rise in pharmaceuticals and biotechnology output. IHS Markit data show that the technology sector recorded the most marked pace of expansion followed by modest financial sector growth. Consumer services also returned to growth following contraction in April.

Both Japan and China saw modest growth but were constrained by poor exports driven by trade uncertainties. Collectively, emerging market expansion slowed to its weakest level since November 2017, contrasting with an acceleration in developed world growth, which reached a new three-month high.

Global growth is still on an upward trajectory, and tailwinds outweigh headwinds for now; however, a shift in the balance is expected throughout the remainder of 2018. We continue to advise our clients on the importance of holding a well-diversified portfolio and taking a long-term view on their investment returns. We continue to see attractive opportunities across global markets.

Risk warnings
This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future. It is important to note that in selecting ESG investments, a screening out process has taken place which eliminates many investments potentially providing good financial returns. By reducing the universe of possible investments, the investment performance of ESG portfolios might be less than that potentially produced by selecting from the larger unscreened universe.