Global Market Viewpoints: First Quarter 2019Submitted by Castlebar Asset Management on April 8th, 2019
Global stock markets posted their best quarterly performance since 2013. This quarter’s rally was largely a snap back move after a difficult 2018. The rally this quarter was helped by a more accommodative tone from central bankers around the world, global economic data showed improvement (from low expectations) and hopes that a US and China trade deal would be concluded in the near term. Economic growth had appeared to stall out late in 2018 but there have been signs things are trending higher late in the first quarter. The US Dollar strengthened slightly this quarter which prevented global stocks from keeping pace with the US markets.
In the quarter, we added one new holding to your portfolio and we reduced one position. We purchased InterXion. This company is a Netherlands based data center business. InterXion operates in Europe and powers all of its data centers exclusively from renewable sources. This business is poised to see significant growth as more businesses will need to keep data for EU citizens and businesses on the continent. We reduced your holding in Umicore. This was done as a risk management move since the stock had grown larger than a 5% holding in your portfolio. The top performing holdings in your portfolio were Shopify (+49.2%), Fresenius Medical (+25.1%) and AMSL (+20.8%).
European stocks outpaced the global markets in the quarter. The rally gained steam when the European Central Bank (ECB) said it would not raise rates until the end of this year. The ECB had previously said they would hold rates only until this summer. It is also anticipated that they will continue to be aggressive with their asset purchases. This is a positive for stocks. Growth concerns are an issue for Europe. The Eurozone only grew at 0.2% in the 4th quarter and it is one of the only developed markets that did not see a pick up in economic data in the first quarter. This is a big reason the ECB is keeping their foot on the monetary policy gas pedal.
BREXIT remains the main event in Europe. The UK has been granted a series of extensions from the EU to negotiate an exit. Parliament has overwhelming voted no on all proposals so far. Parliament has agreed they would like to avoid a hard exit, but they may be running out of patience from the EU. The EU may eventually opt to push the UK out and not give them an extension forcing the UK into a hard exit. If the UK leaves without a deal they would operate under WTO rules. This would cause a significant economic disruption in both the UK and EU. There is a lot of interconnectivity between both economies. Companies and governments have been making preparations, but a hard break would lead to some degree of chaos.
Japan had the lowest performance of the major developed markets. Trade issues were a wet blanket on the Japanese markets. The US-China trade war has a significant impact on the export heavy Japanese economy. While it looks like the US and China are moving closer to a resolution, there is increasing concern that the US could turn its focus to Japan as their next trade target. This fall, Japan is increasing its value added tax from 8% to 10%. In past instances, this has pulled forward some spending followed by a quarter or two slowdown in consumer spending. Japan continues to use unprecedented levels of monetary policy to stimulate the economy. The economic news is not great for Japan but the potential downside is limited given the Bank of Japan is still buying assets, including stocks.
Canada, Australia & Asia
Canadian stocks were a strong performer in the quarter. The increase in energy prices was the primary catalyst. The yield curve in Canada did invert this quarter (similar to the US). This is a reliable signal that the start of a recession is on the horizon but not imminent. Australia stocks performed well but signs its economy is cooling are apparent. Hiring is strong and unemployment is low but banks are not lending, housing prices are weakening and consumer spending is dropping. It is expected that a rate cut could be seen this year to stimulate the economy. The US-China trade war did impact some of the Asian markets. Hong Kong bounced after a tough 2018 to be the best performing market. Singapore lagged as export partners to China saw a slowdown in the quarter.
This quarter the US Dollar strengthened against most major currencies. Despite the strong performance from global equities in the quarter, concerns over slowing economic growth saw investors turn to the US Dollar betting the US economy will outperform its peers. The US Dollar gained between 1% and 2% against the Yen, Euro and Swiss Franc. The British Pound did better in the quarter gaining about 2%. This is largely because the UK government has taken many of the worst case BREXIT scenarios off the table in the quarter.
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.