Market update – May 2017

 

Less than three weeks after triggering Article 50 and starting the official Brexit process, Prime Minister Theresa May dropped a bombshell in the form of a snap General Election, scheduled to take place on 8 June. UK equity indices dipped sharply in response to the surprise announcement, and over April as a whole, the FTSE100 Index fell by 1.6%. In contrast, the FTSE250 Index rose by 3.4% and reached a new high during the month.

Since the beginning of 2017, the best-performing FTSE industry sectors have been personal goods, forestry & paper, electronic & electrical equipment, industrial engineering, and household goods. The worst-performing sectors include fixed-line telecoms, oil & gas producers, technology hardware & equipment, and electricity.

The International Monetary Fund (IMF) expects the UK’s economic expansion to be stronger than previously expected, predicting growth of 2% in 2017 and 1.5% in 2018. Overall, the UK is tipped to be one of the strongest advanced economies in the world this year. Nevertheless, looking further ahead, the IMF expects Brexit to weaken the UK’s economic growth in the longer term, citing “the expected increase in barriers to trade and migration”.

European investors were encouraged by the decisive victory in the French presidential election by the pro-EU centrist candidate Emmanuel Macron. The euro rose to its highest level since November against the US dollar and also strengthened sharply against the Japanese yen, which is widely regarded as a safe-haven currency during periods of instability.

Over April as a whole, France’s CAC40 Index rose by 2.8%, while Germany’s Dax Index climbed by 1%. The French economy grew by 0.3% during the first quarter of 2017 compared with 0.5% in the final quarter of 2016. Growth was undermined by sluggish household consumption and a drop in exports. Nevertheless, activity in the eurozone reached its highest level for almost six years during March, according to Markit, boosted by accelerating growth in the key economies of Germany and France. Inflows of new business into the euro area achieved their strongest rate since April 2011, and employment growth accelerated to its highest level in more than nine and a half years.

The rate of unemployment in the eurozone fell to its lowest level for almost eight years in February, easing to 9.5%. Unemployment in Germany remained at 3.9%, while the rate in France stayed at 10% and Spain’s rate edged down to 18%. In comparison, unemployment in Greece remains above 23%. At a meeting in Malta, the eurozone’s finance ministers agreed a deal “in principle” to release Greece’s delayed bailout funds. The deal includes agreements to cut pension expenditure and increase the collection of taxes.

In the US, the Dow Jones Industrial Average Index rose by 1.3% during April, while the S&P 500 Index climbed by 0.9%. In comparison, the technology-rich Nasdaq Index breached 6,000 points for the first time during April and rose by 2.3% over the month as a whole. Investors were cheered by encouraging corporate earnings reports from several leading technology companies, including Amazon, Microsoft, Intel, and Alphabet (the parent company of Google). Some Federal Reserve (Fed) policymakers have expressed concerns however that equities might be overvalued, warning that price rises were being fuelled by expectations of corporate tax cuts or an increase in risk tolerance amongst investors, rather than by the anticipation of stronger economic growth.

Elsewhere, the rapid growth of credit in China poses a real threat to the wider global economy, according to the IMF. Credit in relation to China’s economy has more than doubled in less than ten years, and the IMF has urged China’s authorities to increase their efforts to slow down credit growth and reduce vulnerabilities. China’s economy expanded at an annualised rate of 6.9% during the first three months of 2017. In March, the National People’s Congress set the country’s overall growth target for 2017 at 6.5%. The Shanghai Composite Index fell by 2.1% over April.

South Africa remained under pressure during April amid intensifying political turmoil. Credit ratings agency Standard & Poor’s (S&P) cut South Africa’s credit rating from “BBB-“ to “junk” status, citing high levels of government debt and political upheaval that is putting the economy at risk, and could result in delays to fiscal and structural reforms. Ratings agency Moody’s placed South Africa’s rating under review, while Fitch cut its own rating of South Africa to “junk” status.

Closer to home, there has been a quarterly fall in the average residential property price in Northern Ireland for the first time in 4 years. The average value decreased by 0.8% – or about £1,000 – to £124,000 in the first months of 2017. The number of sales is also at its lowest point since 2013.

The official calculation is made quarterly by the Northern Ireland Statistics and Research Agency (NISRA) based on stamp duty data. Apartments suffered the biggest recent slump in value (-4.5%), compared to semi-detached properties which stayed unchanged. In terms of council areas, Mid and East Antrim recorded a 3.1% fall and Belfast 2.3%. However, today’s prices overall are still up by 4.3% on this time last year.

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The value of your investment can go down as well as up and you may not get back as much as you originally invested.

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