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LCP Investment Summary - March 2018
Posted on 3 April, 2018 by Administrator
Global equity markets fell 2.8% (in € terms) during March, in what was another volatile month for investors, following the falls experienced in the preceding month.
Eurozone equities fell 2.1%, with investors reacting badly in early March to President Trump’s plans to impose tariffs on steel and aluminium imports to the U.S, sparking fears of a global trade war. The release of solid global economic data reassured markets, but the proposed Chinese retaliation to the potential tariffs of up to $60 billion later announced by the U.S. administration on Chinese imports, again rattled investors with markets hitting one year lows. Behind-the-scenes talks between U.S and Chinese officials calmed down markets somewhat by month-end.
North American equities fell 2.4% in $ terms (3.2% in € terms) with markets having their worst week mid-month in over two years, following the proposed U.S. tariff plans. These sharp falls happened in the same week that the U.S Federal Reserve increased interest rates on the back on continuing economic growth, with the Fed also hinting that interest rates may rise by more than expected in both 2019 and 2020. Tech stocks were hit hard as investors now expect tighter control on the industry following Facebook’s customer data misuse scandal, and issues related to deaths involving Uber and Tesla autonomous vehicles.
Longer-dated Eurozone bond prices rose 2.9% in March, with the yield on the AAA Eurozone 15+ Year Index falling to 1.02% by month end. The Euro Broad Sovereign 10+ Year Index rose by 3.2% with its yield falling to 1.53%.
Yields fell over the month with many investors seeking longer-term Eurozone bonds as a safe-haven following the turmoil in equity markets. Muted inflation data, despite solid economic growth, also helped keep yields low as the ECB may now look to extend its asset-purchase programme beyond the planned September 2018 end-date.
Sample DB Scheme
The funding level of our sample DB scheme fell to 95.5%, as its assets fell and liabilities (calculated using a MFS proxy) rose over the month.
Sample DC Schemes
The High and Medium Risk Strategies fell in March but the Pension Purchase Strategy rose to its high allocation to longer-dated Eurozone government bonds.
Market Performance to 31st March 2018
Global equities fell 3.2% (in € terms) in Q1 2018, in what was a very volatile quarter for investors. Some markets hit record highs in late January before then falling over 10% by early February due to concerns over rising inflation, interest rates and bond yields and then again in March due to fears over a possible global trade-war. Over a quarter which saw a marked increase in market volatility, bond prices fell for most of the quarter but finished higher, as yields rose initially but fell back near the quarter end.
European equities fell 2.7% over the quarter. Continuing positive global economic and company earnings data in January initially reassured investors, despite the negative impact of the stronger euro on the region’s many exporters. Equity markets then fell sharply from late January into early February especially after a better-than-expected U.S. jobs report which increased investor fears about rising inflation which may lead to more interest rate rises than previously expected. The rising global bond yields seen for most of the quarter also made equities look less attractive to some investors, although yields fall back in March.
Markets recovered somewhat over the second half of February but fell in early March as President Trump announced plans to impose tariffs on steel and aluminium imports to the U.S, sparking fears that of a global trade war. The release of solid global economic growth again reassured markets but the proposed retaliation by China to the potential tariffs of up to $60 billion announced by the U.S. administration on Chinese imports again rattled investors towards month end. Behind the scenes talks between U.S and Chinese officials calmed markets somewhat by month-end.
North American equities fell 2.4% in $ terms (3.3% in € terms) over the quarter. In January, markets again hit all-time highs with investors remaining optimistic that share prices could continue to move higher over 2018, also helped by the impact of the tax cuts made by President Trump in December. Markets tumbled in early February, falling over 10% from their record high set in the last week of January to the 8th February low. Share prices recovered over the rest of the month as investors took comfort from the fact that that higher inflation, interest rates and bond yields are as a result of continuing expectations of strong U.S. economic growth.
March saw markets having their worst week mid-month in over two years following the proposed U.S. tariff plans, especially those for Chinese imports. These sharp falls happened in the same week that the U.S Federal Reserve increased interest rates on the back on continuing economic growth, and as a result also hinted that rates may rise by more than expected in 2019/20. Investors were reassured to some extent by month-end as the U.S. and China held talks to avert any possible trade-war. Tech stocks were also hit hard as investors now expect tighter control on the industry following Facebook’s customer data scandal.
Emerging Markets equities rose 0.8% in local currency terms (and fell 0.9% in € terms) over the quarter primarily due to a strong performance in January. Markets followed the sharp global falls in early February, with the stronger US$ also a negative for emerging market equities. March saw steel and aluminium exporters hit hard by the proposed U.S tariffs, especially those from Brazil, South Korea and China.
Yields on longer-dated Eurozone government bonds rose over January and into February with improving global economic data led some investors to believe that global interest rate rises in 2018 may be more aggressive than expected.
Yields fell back later on in February and into March as inflation in the region slowed, making it less likely that the ECB will start to reduce its monetary stimulus and move towards raising interest rates in the near future. March also saw yields falling as a result of investors seeking longer-term Eurozone bonds as a safe-haven following the turmoil in equity markets over a potential global trade-war.