Given the lack of significant events and news, in January situation on the global equity market was fairly calm with a touch of positive mood. The market participants expected Donald Trump’s inauguration and his first actions as a US president. It is obvious that inauguration is a mere formality, though in case with Trump everyone was greatly interested whether he would keep his campaign promises or not.

It must be admitted that the new president has hit the ground running: signed orders on withdrawing the US from Trans-Pacific Partnership Agreement and funding the construction of the US border with Mexico. However, there is no certainty regarding the budget and fiscal stimuli on behalf of Trump’s administration, and consequently, there has been no additional impact on US economy and inflation rate.

The investors mainly focused their attention on the new earnings season. By the end of the month, earnings reports have been released by roughly 35% of the US and Japanese companies and 13% of European companies. It does not allow drawing major conclusion, however, in general the results can be considered fairly positive. In the USA 70% of the reporting companies beat analysts’ earnings expectations and demonstrated the increase in profit by 3%, as compared with the last year. Whilst in Europe, 60% of the reporting companies beat analysts’ earnings expectations, demonstrating a 3% rise in profits.

Corporate news coupled with good macro-statistics provided strong support to the major stock markets and allowed the S&P500 index rise by 1.8%. Stocks of metal and mining companies were among the leaders, growing by 9% during the month. Such growth is mainly attributable to the increase of metal prices, especially iron ore, which in turn is connected with expectations of future US fiscal actions and accordingly increase of demand. The technology sector has also demonstrated positive movements owing to good financial data. Finally, pharmaceutical companies performed better than the market, though previously they were under pressure over fears of possible investigations, connected with overpricing of medical drugs.

European financial market looked less attractive, the STOXX Europe 600 index slightly dropped (by 0.36%) at month-end. This mainly resulted from market consolidation following a significant market growth in December as well as absence of new market drivers (earnings season starts later than in the USA). Amid rising yields on European government bonds, the drop of prices on the companies from the sectors mostly affected by the growth of interest rates such as real estate, telecommunications and utilities, has put serious pressure on the general stock market. Whereas consolidation in oil market caused a correction in stock prices of oil companies. Like in the US, stocks of the companies of metals and mining sector were the growth leaders, and their index increased by 9% over the month.

Against the backdrop of moderate achievements of the financial markets of developed countries, the stocks of emerging markets were standing out, and their composite index MSCI EM grew by 5.5% over the month. Strengthening currencies of emerging markets, which sustained considerable drop after the US presidential election, can be mentioned as one of the major growth reasons, alongside the compensation of lagging behind the global stock market in November and December last year because of the investors’ concerns regarding possible negative impact of Trump’s presidency on the economies of many emerging markets.

In the first month of 2017, volatility on the global bond market was relatively low. The market of long-term US treasuries was at the consolidation stage, following the rapid yield increase at the end of 2016, which boosted price stabilization on emerging bond markets, both government and corporate ones. Moreover, strong sell off in November stimulated the buyers to return to these markets, as well as new investors entered those, which boosted price increase despite large volume of new placements. Thus, respective bond funds managed by ABLV Asset Management demonstrated growth in value of their shares by 0.9-1.4%. Corporate bonds denominated in the US dollars were in good demand as well, although the expected further rate increase and inflation growth put pressure on prices of the investment-grade bonds. The trends on markets of the bonds denominated in the euro were weaker, though positive, due to growing yield of German Bunds, given good macrostatistical data.

In the short-term, we take waiting attitude since a lot will depend on D. Trump’s rhetoric and performance of long-term treasuries. In bond funds the largest part of assets is invested in midterm securities. Further actions will depend on the development of the situation on the market. General view of the corporate bond market and emerging market bonds is positive, since, despite the drop in yields and spread tightening, bond prices and yield to maturity remain at the attractive levels for long-term and midterm investments.

Mutual funds’ return as at 31.01.2017:

¹ Except ABLV Multi-Asset Total Return USD Fund and ABLV Emerging Markets Corporate USD Bond Fund, for which return is calculated on funds’ period of operations.

Additional information is available at ABLV Bank home page in the section “ABLV Mutual Funds”.