Posted on: 12 June 2015
The Conservative election victory spurred UK mid-cap companies
to all-time highs during May. These companies are more sensitive to
the performance of the UK economy than their larger peers and the
market took heart from the return to Government by a single party
with a working majority.
At a sector level, the election result gave a boost to anything
housing related, whether that be house builders like Barratt
Developments (up 14%), estate agents like Foxtons (up 29%) or
property websites like Zoopla (up 26%). These are highly
represented in the UK market's mid-tier, which has performed very
well this year. Most UK collective funds have high exposure to this
area of the market and we have seen some strong performances from a
number of these funds so far.
Commodity-related sectors remain in the doldrums, with mining
companies down 3.4% and oil and gas companies down 3.5% in May.
Base metals like iron ore and copper have been in a bear market for
a while, due to more supply coming on-stream and a slowing of
Chinese demand. Performances among the oil majors have been mixed,
but Royal Dutch Shell, the largest, has disappointed since its bid
for BG. There seems to be little appetite for the shares while the
deal awaits approval from a host of international regulators,
although we think that long-term performance will validate this
deal in due course.
In currency markets, the US dollar began to rally in the second
half of the month, following a speech by
Janet Yellen (Federal Reserve chair) where she said she expects the
US economy to strengthen following its contraction in Q1. She has
said in the past, that the timing of interest rate rises will
depend on economic data - she confirmed that if the economy
improves as she expects, rates will begin to rise this year with
the objective of 'normalising monetary policy'.
The dollar rally was felt keenly by the Japanese yen, which
weakened to ¥124 versus the dollar. This is a significant level and
suggests that the yen may weaken further. The Japanese stock market
tends to move inversely to the exchange rate so rallied 5.2% over
the month, well ahead of the other major equity markets.
While the election was a big domestic event, it was largely a
sideshow for markets that remain focused on the next move for US
interest rates. This is likely to take place in the autumn and
markets may be volatile in the summer as we get closer. However,
provided any rate rises are small and gradual, equity and bond
markets should be able to adjust to the change in monetary
22 May Rhode
has been compiled by Duncan Lawrie from sources believed to be
details of sources are available on
comments and figures in this document are generally applicable but
you should always take specific advice to suit your individual
circumstances before taking any action. Errors and omissions
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.