Multi-Asset

Back to the races?

Most developed markets performed well in February – but is the recent correction really over?
March 2019

Risk Disclaimer

The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Was that it? Is the “correction” now over and are we back to the races? The US Federal Reserve, which helped propel the market downturn with “quantitative tightening” (QT), appears to be backing off and Wall Street has picked up the scent and run with it. And then, in time-honoured fashion, the rest of the world markets slavishly followed along. Most have now recovered the losses of recent months. Wall Street is back to where it was last November. Why were we concerned?

But has anything fundamental changed? Well, if QT has genuinely been suspended it will obviously prevent the constant liquidity drain, which is never good news for stocks. But unless the other Q (QE) restarts, we still remain in a very different environment than previously as the steady flood of new money, which juiced global markets from 2009, has ceased (except in Japan). The legacy of the “juicing” is a level of indebtedness relative to output that exceeds anything that has gone before. And in the meantime, the world economy continues to grow ever more slowly.

Risk Disclaimer

The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

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MSCI local currency price indices for developed markets in February demonstrated pretty impressive returns, and since the beginning of the year, many markets are now up by more than 10%. The US, for example, has delivered appreciation of 11.4%.

But many developed stock markets are down if measured over 12 months. Austria, Belgium, Denmark, France, Germany, Ireland, Italy, Portugal, Spain, UK, Japan and Singapore all fit into that category. Even the US has only managed to eke out a marginally positive return over a year (2.8%).

Benchmark 10-year government bond markets saw little change in yields over February. The US bond continues to trade around 2.7%, Canada around 1.9%, Germany 0.18% and UK 1.3% (a marginal increase), whilst Japan rewards 10-year investors with a negative yield of 0.02%. (Source: Bloomberg). None of these yields suggest robust economic growth ahead. None of them provide an adequate return. All of them indicate an investment world still suffering a hangover from extraordinary central bank intervention. Normality remains some distance away.