Duncan Lawrie Online ▼

Posted on: 13 July 2015

June was a spectacularly poor month for asset prices, taking place against the backdrop of Greece's failure to make a payment to the IMF. In subsequent days, the Greek Prime Minister called a referendum on whether to accept the ECB's bailout conditions or not. Many commentators aligned a 'No' vote to a gradual march out of the Eurozone, but the reality may be less straightforward. The Greek Government wants a wholesale renegotiation of the country's debts as well as an injection of funds, while in the Eurozone the Greeks' perceived overspending and intransigence has made it more difficult for other Eurozone countries to justify the bailout to their electorate.

The Eurozone is in uncharted waters now; there is no mechanism by which a country may leave the single currency, but once one has been created it may become easier for other countries to look for the exit.

Despite a 5.3% fall in the Chinese equity market - as the CRSC (China Securities Regulatory Commission) tightened lending criteria for investors - Emerging Market equities outperformed Developed Market equities in June. Interestingly, it was not Germany or Greece whose equity market underperformed most during the month, it was Sweden (-6.5%) and the UK (-6.3%). The latter was disproportionately affected by a sell-off in its largest sectors: healthcare, oil & gas, and basic materials. Falling resources prices (including copper and iron ore), combined with lower growth expectations for Emerging Markets such as China, explain much of the fall.

The US equity market fell 1.9% during June, better than all but one (Singapore) of the world's Developed Markets. In part, this was thanks to dovish comments from the Federal Open Market Committee (FOMC) - the policy setters within the Federal Reserve. The minutes of their meeting showed that fewer members expected to increase interest rates in 2015, and interest rates were likely to be lower than previously expected in 2016 and 2017. Lower inflation and an uncertain economic recovery have given the Fed breathing space in which to leave rates lower than during earlier cycles, and this has helped all manner of asset classes, from corporate bonds to equities.

Across bond markets, the trend was downwards during June. Ten-year UK gilt yields moved from 1.8% at the end of May to 2.0% at the end of June. This was matched by both the US and German bond markets, and reflects a gradual shift in inflation expectations.

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All data has been compiled by Duncan Lawrie from sources believed to be reliable. Full details of sources are available on request.
Information provided in the above articles and any opinions expressed are for general use only. You should always take specific advice to suit your personal circumstances before taking any action. Errors and omissions excepted.
The value of investments and income generated may fall as well as rise, and investors may not get back the amount invested. Past performance is not a reliable indicator of future results.