Global markets looking solid for now and equities remain reslient
April proved to be yet another eventful month for the financial markets according to a recent report.
The Schroders Charities Market Update noted that Japan was dealt a blow as additional earthquakes caused further structural damage and hampered efforts to contain the nuclear fallout at Fukushima. It goes on to explain: "Markets in Europe took further sovereign downgrades in their stride, whilst ratings agency, Standard & Poor (S&P) triggered speculation that it could lower its long-term credit rating of the US after instituting a ‘negative’ outlook. Continued political unrest in the Middle East and rising energy costs also weighed on sentiment. Despite these dampening effects, global markets posted solid gains over the month, as leading economic indicators continue to suggest a broad-based recovery. UK equity markets performed well, returning +3.1 per cent over April. Equity market resilience was aided by a continued pick-up in M&A activity and a string of positive earnings newsflow. In contrast to the first quarter, retailers didparticularly well as commentators suggested that sentiment towards the sector had become overly negative."
- "We believe that low interest rates and reasonably robust corporate earnings will continue to support equity markets, although we expect volatility throughout the summer.
- We maintain exposure to risk assets and particularly to equities, focusing more on developed markets which, in our view, are offering better value.
- We continue to feel that bonds, in particular gilts, are fully valued and expect gilt yields to rise over the next 12 months.
- Corporate bonds have performed well. Whilst we feel that there is little capital upside left, they still provide a significant uplift over cash in yield terms.
- We continue to gain exposure to emerging market GDP growth through exposure to an absolute return fund investing in emerging market debt and currencies. We believe that this is a less volatile approach than investing in emerging market equities.
- Where appropriate, we still believe in an allocation to 'absolute return' funds given anticipated equity market volatility.
- Commodities typically provide a decent hedge against rising inflation; however we continue to feel that volatility will be high as evidenced by significant falls in early May.
- We expect income to be the primary component of property total returns over the next year and expect little in terms of capital appreciation."
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