Trade fears and tech stocks make for a volatile month
Investment markets endured a torrid end to the first quarter of 2018: stock markets fell and longer-dated government bonds rallied as investors sought refuge in perceived ‘safer’ assets. A slew of negative news about large technology firms, including Facebook and Amazon, hit tech stock valuations, while fears over increased international trade tensions caused investors to adopt a more cautious approach. Confidence in continued robust global growth may have been knocked by some signs of deceleration in the Eurozone.
Early in March, the United States announced that it would impose tariffs on steel and aluminium imports. The tariffs, which took effect on 23 March, excluded imports from the EU and six other economies, but included those from China. In turn, China announced retaliatory increases on some US food and metals imports. While the announced tariff hikes would affect only a very small proportion of global trade, markets were influenced by fears they could be the opening shots in a much more widespread trade war, which would have a significant negative impact on the global economy. Meanwhile, investor confidence in Facebook was hit by concerns over the privacy of users’ data, while Amazon was dented following a series of tweets from the US president criticising its business model and impact on traditional retailers.
The MSCI World index fell 4.2% in sterling terms (a fall of 2.4% in US dollar terms) over March. In sterling terms, the S&P 500 index underperformed, dropping 4.4% on the month, while the less tech-heavy FTSE 100 index and Eurostoxx 600 experienced smaller declines, of 2.4% and 3.2%, respectively. The MSCI Emerging Markets index slipped 3.8% and the Japanese Nikkei 225 sank 4.1%; both markets are relatively overweighted in technology and their underlying economies are heavily driven by exports.
The US Federal Reserve raised interest rates by 0.25 percentage points to a range of 1.5%-1.75%. This was the sixth increase since the global financial crisis. Longer-dated US Treasuries rallied after the rate increase, causing yields to fall. This was associated with a broader decline in benchmark government yields globally. German and UK 10-year government bond yields dropped 0.17 and 0.16 percentage points, respectively.
Corporate bond markets shared the more defensive tone in March across sterling, euro and dollar markets. Emerging market corporate bonds shared in the retreat, with the benchmark EMBI Global Diversified index underperforming similar-quality US corporate bonds.
Commodities markets were mixed. The price of West Texas Intermediate crude oil gained 4.8% over the month but slid in early April, possibly on fears that increased protectionism would affect global growth and oil demand. Data showing that Russian oil production had increased may have undermined faith in the restraint of key global producers. Meanwhile, base metals prices generally eased, including steel. The price of gold spiked as much as 3% in the wake of the US tariff imposition, but slid to only a 0.5% gain on the month, in line with the broader defensive tone (as gold is often seen as a ‘safe haven’ asset). Real estate outperformed in March, with one global property equities index advancing slightly in sterling terms.
MSCI indices sourced from MSCI and real estate sourced from Financial Express. All other data sourced from Citi.
Should I make any changes to my investments?
Everyone’s circumstances are different and we aren’t able to give you advice on what is appropriate for you. As always, if you are considering your own position, you should remember why you invested in the first place and consider the lifespan of your investments.
One way in which you can help reduce the impact of any market volatility is to spread your investments across different asset classes and regions. For more information about investing across different asset classes take a look at our Introduction to diversification in multi-asset funds guide.
Remember that before making any changes to your investments, you should seek financial advice. If you don’t have a financial adviser, you can find one local to you by visiting Speak to an expert , which is responsible for promoting financial advice in the UK.
All figures quoted are in sterling terms to 31 March 2018 unless otherwise stated.