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LCP Investment Summary May 2019
Posted on 5 June, 2019 by Administrator
Equities - Global equity markets fell sharply in May, down 5.2% (in € terms). The month started well with some markets hitting record highs in the first week after a stronger-than-expected U.S. employment report. However, investor sentiment turned quickly following President Trump’s announcement that tariffs on $200bn worth of Chinese imports would increase from 10% to 25%. China duly responded by raising tariffs on $60 billion worth of U.S. goods to between 10% - 25%, starting in June. Technology stocks then fell after President Trump’s executive order, declaring a national economic emergency banning technology & services of ‘foreign adversaries’ (like Huawei) deemed to pose ‘unacceptable risks’ to national security.
The ongoing global trade issues have impacted on both business and consumer confidence, leading to falling expected capital expenditure which is weighing on already sluggish global economic growth. Investors were further rattled at monthend as President Trump turned his attention to Mexico, announcing tariffs of up to 25% on all Mexican imports to the U.S. as retaliation for illegal immigration. This hit global car makers like General Motors, Fiat Chrysler, Ford and BMW as they all have significant operations in Mexico.
Bonds - Longer-dated eurozone bond prices rose 3.9% in May, with the yield on the AAA Eurozone 15+ Year Index falling to 0.32% by month-end. The Euro Broad Sovereign 10+ Year Index rose by 2.5% with its yield falling to 1.25%. Eurozone AAA bond yields fell sharply as investors looked to the ‘safe-haven’ of longer-dated bonds with equity markets under pressure. Yields fell globally as trade war issues put more pressure on the slowing global economy with investors now pricing in the possibility of interest rate cuts during 2019/20.
Sample DC Schemes - Two of our sample DC Strategies fell in May as most asset classes were lower over the month, but the Pension Purchase Strategy rose due to its large holding of longer-dated AAA eurozone government bonds.