Expert view

Wednesday, 13th June 2012

How were investment conditions during May?

Global equity markets fell 2.1% in May, due to growing anxiety about the Eurozone and wider growth fears following weaker economic news from China, but still remain in positive territory for 2012 with a return of 6.1% to the end of May.

China, the main driver of future global economic growth, has been experiencing a slowdown in recent months and investors are watching closely to see if this slowdown results in a hard or soft landing. The slowdown is not surprising as the authorities implemented a number of measures throughout 2011 with the objective of slowing the economy down. A Chinese slowdown is different to others. GDP growth has gone from 12% in 2010 to its current rate of 8%.

Eurozone bonds rose 2.5% in May as yields on German, US and UK debt hit record lows towards the end of the month when investor risk appetite waned.

Worries over the Spanish banking system pushed 10-year government bond yields above 6.5%, moving ever closer to the 7% levels that many analysts see as an unsustainable cost of borrowing.

The US S&P 500 rose 0.6% in euro terms and Eurozone equities fell by 6.6%.

Germany continued to lead the way in the Eurozone posting strong export and domestic consumption figures during the month.

Asian markets suffered on the back of the general Eurozone political woes and deteriorating GDP data in Europe falling by 5.6%.

Japanese equities were more resilient following news of a strong rebound in Japan's economic growth in the first quarter with an expansion of 1.0%, more than expected and up sharply from the fourth quarter of 2011.

Significant shifts in exchange rates were a feature over the month as currency markets experienced considerable volatility. The euro depreciated by 7% against the US Dollar and 8% against the Japanese Yen as investors took flight from the euro and sought out these perceived safer-haven currencies.

Commodity prices fell 2.7% over the month predominantly due to a significant fall in the price of WTI Crude Oil from $99 per barrel to $87.