The closing of the Q1 in the markets confirms that this will be a complicated year for equities. The Great Crisis that the world lived since 2007-2008 is not ended at all, as there are some points of instability. Some of them are related to international politics: the shadow of terrorism, the wars in Middle East, the fight in the European Union and the US elections are some points to watch that affect the market evolution. However, there are also financial and economic troubles to solve: the ECB policies show that they are not enough to stabilise the European credit flows and return to some inflation, while the Federal Reserve stays cautious in the next steps to follow in its monetary policy. No one wants to be blamed of being a cause of a second big recession.
The T-Advisor charts show these statements. As we can see in the both charts below, comparing the general trend in global regions, there has been a positive evolution between the beginning of the year (above) and the end of the Q1 (below), but very slight apart from the Latam region:
If we check the evolution in each region, we can perceive much better the specific changes:
Besides the traditional parallel evolution amongst the European markets, it is also to underline that no main stock exchange registered positive returns YTD. The recovery from February was stopped by the instability created by the possibility of a Brexit (an independence of UK from the EU) and the terrorist attacks in Brussels, in the heart of the capital city of the European institutions. The ECB has also lots of troubles to make efficient their decisions, because its expansive policy has still no positive effects in the real economy to consolidate the general recovery.
The trend is positive since the second half of January, but S&P Index was finally positive YTD in the last weeks of the Q1. The uncertainties related to the US election (no candidate is clearly heading the primary elections) and economic evolution make investors cautious. However, the announcement of the Fed about a delay in the next rate hikes was welcomed and consolidated the slight bullish trend.
The market behaviour was better in the emerging countries, although some evolutions are very linked to national decisions. For instance, the evolution of Argentinian Merval in March was erratic because of the agreement with the creditor funds, which was not totally assessed as positive by investors. In the case of Brazil, the cases of corruption in the Government have determined the ups and downs in Bovespa.
The biggest markets (Shanghai and Tokyo) are really bearish and sum a very negative YTD return in this Q1. In China, the bubble broken last summer produced a hard landing in which the market is still moving. The trend is erratic or, better said, there is no trend. In Japan, there are worries about the global evolution, because the country has a great support from its exports. The doubts about the economy, underlined by the low oil price, and the instability of the exchange rate with the dollar are two hard reasons to be wary.
What can we expect in the Q2? We do not like to make any prediction or copy what others expect, but we prefer to alert about some relevant issues:
- Look at the oil price: it is linked with the global activity.
- Follow the Fed and ECB decisions: the Fed is progressively hawkish and the ECB should be more dovish to push the credit flow and inflation in the Eurozone.
- Watch the Q1 profits of the companies, because they provide a guide about the economic activity.
- Be wary about emerging markets: the dollar evolution (if the Fed hike the rates) can be negative for them.