In the month of February, global markets demonstrated a mix of overall resilience and diverging fortunes across asset classes. A ‘risk on’ portfolio stance was generally well rewarded.
Global equity markets experienced another positive month, fuelled by positive economic data and generally strong earnings reports. Japan’s equity market continued its rally with the Nikkei 225 Index reaching a new all-time high, despite the economy slipping into a technical recession in the second half of 2023.
US and European equities both showed positive movements. The US economy’s resilience has continued, with household consumption supported by a strong labour market, disinflation and larger than expected excess savings. The Eurozone also showed some signs of improvement, demonstrated by a rise in the composite purchasing manager index (PMI). UK stocks lagged, influenced by disappointing earnings data and economic indicators pointing to a technical recession.
Australian equities produced a small positive return in February. The industrial sector outperformed while resources significantly underperformed.
Emerging markets equities, especially China, noticed a significant rebound, supported by government interventions in the stock market and more easing measures, specifically a notable 25bp cut to the five-year loan prime rate (the benchmark for mortgage rates), curbs on short selling, and stock purchases by state-owned investment firms.
While inflation has moderated across developed markets as base effects fade, the headline rate remains above target rates in most countries. Core inflation excluding food and energy has trended lower as labour markets rebalance, while services costs, in particular shelter or rent inflation, has proved to be persistent and driven the headline inflation rate in the US and Australia, offsetting goods disinflation. Market expectations have moderated as recent inflation prints have exceeded forecasts and current pricing indicates fewer rate cuts later in the year. Bond yields have been volatile against this backdrop, but on balance, global fixed income markets produced negative returns in February.
Oil prices have been volatile since the start of the Israel/Hamas conflict. Although prices were trending lower in the closing months of 2023, the Red Sea conflict and concerns over shipping/supply disruptions have renewed the pressure on oil prices, which produced positive return in February.
The Australian dollar weakened against most major currencies, driven by a strengthening USD as well as continued weakness in the Chinese economy.
Australian listed property produced positive returns while global listed property and infrastructure were flat over the month. Housing values have been resilient in the face of high interest rates and cost of living pressures, reflecting a persistent imbalance between supply and demand.
