Quarterly Market Summary - mandg.com
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Past performance is not a guide to future performance Real GDP growth Equity market performance v. FTSE World Index (2nd quarter 2021) UK equity market indices (12 months to 30.06.21) Economic overview The rollout of COVID-19 vaccinations continued to gather pace globally, allowing authorities to ease restrictions and economic activity to accelerate. In the US, the world's largest economy grew by an impressive 6.4% annualised in the first quarter, and forecasters expect growth to have accelerated in the second quarter as the majority of economic data continued to look very favourable. This came as the new US administration put forward its first annual budget proposal in May, which included a massive US$6.0 trillion spending plan. However, the US and other developed nations saw inflation surge during the second quarter, driven by strong post-lockdown demand and shortages of some raw materials. This prompted much speculation about when central banks and governments would start to withdraw economic stimulus measures. Market overview The majority of the world's stockmarkets registered solid gains in the quarter, buoyed by the widespread rollout of vaccination programmes which aided the reopening of economies. Investment returns among European shares were particularly strong as vaccination take-up in the region accelerated following a slow start. Global commodity markets continued to reflect rebounding demand for raw materials - the price of oil advanced by more than 20% during the quarter, for example. Fixed income markets were also higher in the period as central banks dampened speculation they would be withdrawing stimulus measures soon, and many investors seemed to shrug off global inflation fears. There was little overall movement in currency markets. UK equities UK equities experienced another positive quarter, finishing ahead of Asian and emerging markets, but behind the US and Europe, which reached new highs. After advancing through April and May, the domestic market moved sideways in June, held back by a delay to lifting the third lockdown restrictions in the wake of a rise in the Delta variant of coronavirus, as well as concerns about the scaling back of COVID-19 support measures and increased friction with the EU over the Northern Ireland Protocol. In addition, there was a brief setback towards the quarter-end when the Federal Reserve signalled that US interest rates might be raised sooner than expected, albeit still a long way off in 2023. This was a reaction to a spike in inflation, which is also being experienced in the UK. However, investors subsequently decided for now that the impact of inflationary forces caused by a recovering global economy would be transitory. Notably, smaller companies continued to outperform the broader UK market. Source: Refinitiv Datastream, July 2021 Financial Year 2020 Forecast 2021 Forecast 2022 Source: Refinitiv Datastream Sterling Equity index performance Pooled Pensions Quarterly market summary Q2 2021
Transcript of Quarterly Market Summary - mandg.com
Past performance is not a guide to future performance
Real GDP growth
Equity market performance v. FTSE World Index (2nd quarter 2021)
UK equity market indices (12 months to 30.06.21)
Economic overviewThe rollout of COVID-19 vaccinations continued to gather pace globally, allowing authorities to ease restrictions and economic activity to accelerate. In the US, the world's largest economy grew by an impressive 6.4% annualised in the first quarter, and forecasters expect growth to have accelerated in the second quarter as the majority of economic data continued to look very favourable. This came as the new US administration put forward its first annual budget proposal in May, which included a massive US$6.0 trillion spending plan. However, the US and other developed nations saw inflation surge during the second quarter, driven by strong post-lockdown demand and shortages of some raw materials. This prompted much speculation about when central banks and governments would start to withdraw economic stimulus measures.
Market overviewThe majority of the world's stockmarkets registered solid gains in the quarter, buoyed by the widespread rollout of vaccination programmes which aided the reopening of economies. Investment returns among European shares were particularly strong as vaccination take-up in the region accelerated following a slow start. Global commodity markets continued to reflect rebounding demand for raw materials - the price of oil advanced by more than 20% during the quarter, for example. Fixed income markets were also higher in the period as central banks dampened speculation they would be withdrawing stimulus measures soon, and many investors seemed to shrug off global inflation fears. There was little overall movement in currency markets.
UK equitiesUK equities experienced another positive quarter, finishing ahead of Asian and emerging markets, but behind the US and Europe, which reached new highs. After advancing through April and May, the domestic market moved sideways in June, held back by a delay to lifting the third lockdown restrictions in the wake of a rise in the Delta variant of coronavirus, as well as concerns about the scaling back of COVID-19 support measures and increased friction with the EU over the Northern Ireland Protocol. In addition, there was a brief setback towards the quarter-end when the Federal Reserve signalled that US interest rates might be raised sooner than expected, albeit still a long way off in 2023. This was a reaction to a spike in inflation, which is also being experienced in the UK. However, investors subsequently decided for now that the impact of inflationary forces caused by a recovering global economy would be transitory. Notably, smaller companies continued to outperform the broader UK market.
Source: Refinitiv Datastream, July 2021
Financial Year 2020 Forecast 2021 Forecast 2022
Source: Refinitiv Datastream Sterling
Equity index performance
Pooled Pensions
Quarterly market summaryQ2 2021
Past performance is not a guide to future performance
Local currency
Gilt indices (12 months to 30.06.21)
Equivalent yields (to 31.05.21)
10-year government bond markets (12 months to 30.06.21)
UK bondsUK government bonds (gilts) delivered modestly positive returns in the second quarter of 2021, with 10-year gilt yields declining slightly from 0.8% at the end of March to 0.7% at the end of June. While core government bond markets came under some pressure in the quarter as a result of the strengthening economic backdrop and rising inflation expectations, valuations continue to be well supported overall thanks to dovish messages from the Federal Reserve and the world's other central banks. Returns for UK corporate bonds were similarly muted, with credit spreads largely rangebound in the quarter.
UK propertyUK commercial property returns continued to increase in the second quarter of 2021, with all sectors providing a positive contribution. Industrials remained the standout performer, achieving both rental growth and further yield tightening. In the retail sector, whilst capital declines continued to impact shopping centres and high street shops, supermarkets and retail warehouses are proving more resilient. With shops reopening and consumers eager to spend accumulated savings, we believe the sector is set for recovery. In the Office sector, the attractive long-term fundamentals of London remain intact. However, greater polarisation is expected regionally, between well-located assets with the highest environmental, social and governance (ESG) credentials and the rest. Investor demand is likely to remain keenly focused on "beds and sheds", as well as emerging alternatives.
International bondsIt was a positive quarter for the majority of fixed income markets, with central banks trying to reassure investors that although inflation was rising it was likely temporary, and there would be no immediate tightening of monetary policy. Yields were either flat or slightly lower on core government bonds in the period, boosting valuations on US Treasuries and UK gilts. Elsewhere, German bunds and peripheral eurozone governments' bonds lost money. Within credit, US and UK corporate bonds fared better compared to European corporate bonds, although all ended the period in positive territory. Emerging markets bonds - both corporate and government - had a decent quarter. Meanwhile, bond investors continue to gauge what impact a better outlook for the global economy will have on fixed income assets in the coming months, given rising uncertainty on inflation and the direction of interest rates.
Quarterly Market Summary2
Past performance is not a guide to future performance
FTSE World North America Index (12 months to 30.06.21)
FTSE World Europe (ex-UK) Index (12 months to 30.06.21)
FTSE World Japan Index (12 months to 30.06.21)
North AmericaUS equities enjoyed another positive quarter, their fifth in a row, with investors' expectations of economic recovery strengthening as vaccinations were rolled out and businesses reopened. Continued economic support from the government also helped. Although there was some concern about a sharp rise in inflation, and the possibility that robust activity could lead to the withdrawal of stimulus measures, the Federal Reserve seems to have reassured investors that higher prices will be transitory and that interest rates are unlikely to rise in the near future. All the main US indices hit record highs during the quarter, with the largest gains coming from technology and energy stocks. While value stocks performed better in April and May, growth stocks returned to the fore in June. Helped by strength in the price of oil, Canada's stockmarket also rose strongly.
EuropeEuropean equities continued to climb in the second quarter and reached record highs. As the region's COVID-19 vaccination rollout gathered momentum, investors' optimism about the economic recovery strengthened. Robust corporate results and continued stimulus measures were also supportive. These factors outweighed concerns about rising inflation and the Delta variant of the coronavirus. Stockmarkets in Austria, Denmark and Switzerland were among the best performers. On the other hand, some of the bigger markets, notably Germany, Italy and Spain were laggards. At the sector level, there was a change in market leadership from the previous quarter as defensive areas such as consumer staples and healthcare led the way. Information technology and real estate stocks also registered healthy gains. In contrast, utilities declined and the economically sensitive energy, financials and materials sectors trailed the broader market.
JapanHaving reached the symbolic 30,000 level on the Nikkei 225 Index in February (for the first time since 1990), the Japanese stockmarket traded broadly sideways in the second quarter and lagged other developed markets. The better-performing sectors included information technology, consumer staples and real estate, whilst communication services, financials and utilities lagged. The recent reporting season (most Japanese companies have March year-ends) did not throw up too many surprises - results were generally much better than feared, but forward guidance was generally below consensus expectations. As the country prepares for the Tokyo Olympics, comprehensive lockdown restrictions have brought daily new coronavirus cases down substantially from their recent peak in mid-May.
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FTSE All World Asia Pacific ex Japan Index (12 months to 30.06.21)Pacific Basin Ex-JapanOverall, stockmarkets in the Asia Pacific ex Japan region lagged the markets of developed economies during the second quarter, with China (which has the biggest weighting in the region) weighing on performance. Other markets that were left behind included Malaysia and Thailand, two countries which have seen a pick-up in COVID-19 cases in recent months. The better-performing stockmarkets included Australia, India, Taiwan and the Philippines. Australia benefited from its exposure to the commodity sector, whereas India saw a fall in new daily COVID-19 cases, albeit from high levels. At the sector level, healthcare, industrials and materials (which was aided by the appreciation of a broad range of commodities) outperformed. Laggards included communication services, real estate and utilities.
Emerging marketsEmerging market equities rose in the second quarter, but continued to lag their developed market counterparts. The positive mood reflected optimism about the global economic recovery. However, investor sentiment towards emerging markets was dampened by rising COVID-19 infections and the prospect of interest rate rises in the US, which could make emerging market assets less attractive. Indonesia, Malaysia, Thailand and South Africa were among the weakest markets, as another wave of coronavirus infections and slow vaccination rollouts delayed their economic recovery. Chile and Turkey were notable laggards too. In contrast, Brazil's stockmarket rallied, recovering from weakness in the previous quarter. Higher oil prices supported Russia's stockmarket, while India outperformed too. At the sector level, healthcare was the standout performer. Energy and industrials also advanced. On the other hand, real estate declined amid uncertainty about the impact of the pandemic on commercial property. Communication services and utilities lagged as well.
MSCI Emerging Markets Index (12 months to 30.06.21)
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Please note that the views on markets expressed in this report are those of M&G as at 30.06.21 and should not be taken as investment recommendations. Past performance is not a guide to future performance. The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested.
2nd Quarter 2021% 12 months to 30.06.21%Local Sterling Local Sterling
Equity index total returns*FTSE World 7.4 7.5 37.6 25.5
FTSE All World ex UK 7.2 7.3 38.2 25.3
FTSE All-Share 5.6 5.6 21.5 21.5
FTSE 100 5.7 5.7 18.0 18.0
FTSE Mid 250 4.7 4.7 33.4 33.4
FTSE Small Cap 9.0 9.0 50.1 50.1
FTSE World Europe (ex UK) 7.2 8.3 30.6 22.8
FTSE World France 8.5 9.3 33.3 25.9
FTSE World Germany 4.3 5.1 25.9 18.9
FTSE World Italy 3.1 3.9 30.8 23.5
FTSE World Spain 4.4 5.2 24.6 17.7
FTSE World North America 8.8 8.7 41.8 27.3
S&P 500 Composite Index 8.6 8.4 40.8 25.9
FTSE World Japan 0.1 -0.5 28.8 12.0
Nikkei 225 -1.3 -1.9 29.2 12.3
FTSE All World Asia Pac (ex Jp) 4.3 4.1 36.8 25.9
FTSE Australia 8.4 6.7 28.8 25.7
FTSE China (All Cap) 2.2 2.2 28.1 14.3
FTSE Hong Kong 3.0 3.0 32.1 17.9
FTSE Korea 4.9 5.3 59.0 51.9
FTSE Singapore 0.4 0.2 22.6 13.8
FTSE Thailand -2.2 -4.8 15.8 -0.1
MSCI Emerging Markets 3.9 5.0 36.5 26.4
MSCI Brazil 9.3 22.8 34.2 31.3
MSCI Argentina 5.8 5.7 28.6 15.0
MSCI Mexico 6.3 9.1 34.7 39.8
MSCI South Africa -4.6 -1.5 18.5 29.0
*Returns include incomeSource: Refinitiv Datastream.All data is sourced from M&G unless otherwise stated
Past performance is not a guide to future performance. The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested. The fund can be exposed to different currencies. Movements in currency exchange rates may adversely affect the value of your investments.For definitions of the investment terminology used within this document please see the glossary at:www.mandg.com/investments/private-investor/en-gb/help-centre/glossary
Market Data
Quarterly Market Summary 5
2nd Quarter 2021% 12 months to 30.06.21%Local Sterling Local Sterling
Bond index total returns*FTSE Actuaries UK Conventional Gilts All Stocks Index 1.7 1.7 -6.2 -6.2
UK gilts under 5 years 0.1 0.1 -0.6 -0.6
UK gilts 5 - 15 years 1.1 1.1 -3.7 -3.7
UK gilts over 15 years 3.2 3.2 -10.9 -10.9
FTSE Actuaries UK Index-Linked Gilts All Stocks Index 3.6 3.6 -4.0 -4.0
iBoxx £ Non-Gilts Index 1.7 1.7 1.7 1.7
Salomon World Govt Bond Index 1.0 0.9 0.8 -9.9
10-yr benchmark bond returns* Yield as at 30.06.21 (%)
UK 0.7 1.4 1.4 -4.7 -4.7
US 1.4 3.8 3.6 -4.9 -14.9
Japan 0.1 0.5 -0.1 0.2 -12.9
Germany -0.2 -0.4 0.3 -2.0 -7.4
France 0.1 -0.5 0.3 -1.2 -6.7
Currency changes vs sterling Exchange rate as at 30.06.21
Q-Q chg % Y-Y chg %
Dollar 1.3815 -0.1 – -10.6 –
Euro 1.1649 0.8 – -5.6 –
Yen 153.3272 -0.6 – -13.1 –
Interest rates Rates as at 30.06.21 (%)
UK base rate 0.10 0.0 0.0
US Fed Funds rate 0.25 0.0 0.0
ECB base rate 0.00 0.0 0.0
Commodities Price level as at 30.06.21
Oil (Brent crude) US$ per barrel 75.3 18.5 18.3 82.4 63.2
Gold bullion US$/troy oz 1,765.4 3.6 3.4 -1.0 -11.5
Comm Research Bureau Index NA NA NA NA
*Returns include incomeSource: Refinitiv Datastream.All data is sourced from M&G unless otherwise stated
Past performance is not a guide to future performance. The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested. The fund can be exposed to different currencies. Movements in currency exchange rates may adversely affect the value of your investments.For definitions of the investment terminology used within this document please see the glossary at:www.mandg.com/investments/private-investor/en-gb/help-centre/glossary
6 Quarterly Market Summary
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7Quarterly Market Summary
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Please note that the views on markets expressed in this report are those of M&G as at 30.06.21 and should not be taken as investment recommendations.Issued by M&G Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. M&G Pooled Pension funds are provided under an insurance contract issued by Prudential Pensions Limited and Prudential Pensions Limited has appointed M&G Financial Services Limited as a distributor of its products. The registered office of both companies is 10 Fenchurch Avenue, London EC3M 5AG. Both companies are registered in England under numbers 923891 and 992726 respectively.Jul 21 / 60908
