September brought back optimism to global stock markets triggered both by good economic data reports and by desire of the investors to buy stocks that became cheaper in price. From mid-May to end of August, stocks of European companies dropped on average by more than 7%. It is therefore no surprise that prices got more attractive for the market players, and along with the change of moods followed the buy-up of European stocks.

To certain extent, growth of European stock market was facilitated by stabilisation on the exchange market — after an almost constant growth of six months, EUR finally started correction, which returned interest of buyers in stocks of companies with high export revenue share. During the month, stock index of European companies Euro Stoxx 600 grew by 3.8%, while index of German companies DAX went up by 6.4%. The unofficial Catalonia independence referendum held in Spain turned out to be unable to make any serious impact on large audience of investors, and the Spanish were the only to feel the effect of this event — Spain’s benchmark stock index IBEX 35 grew by only 0.8% during the month, thus significantly underperforming other markets.

This month turned out to be positive for USA, as well. US broad market index S&P 500 increased by 2% this month settling above the psychologically important level of 2,500 points. Optimism of the investors was heated by good US macroeconomic reports — the updated data reveal that GDP growth in Q2 constitutes 3.1%, while a list of manufacturing and business activity indicators was demonstrating solid growth exceeding the predictions of analysts. Also a certain role had the long-anticipated first step towards tax reform in US. Committee on the Budget offered decreasing corporate income tax to 20%, implementing territorial tax system, as well as replacing the current seven individual income tax brackets with three brackets. Cutting the taxes should increase profit of US companies, thus having positive impact on their value.

On the background of falling main currencies against US dollar, for the first time this year emerging markets demonstrated a monthly drop. In September, MSCI EM decreased by 0.5%. Meanwhile, strengthening of USD worked for the benefit of Japanese stock market, where the benchmark stock index Nikkei 225 stopped its sideways trend of the last four months, and demonstrated growth by 3.6%.

Given the increasing optimism on the global stock market, a better performance was shown by cyclical sectors. Both in Europe and US, oil and gas sector was among the top gainers, given the growth of oil prices due to attrition of crude stocks in US. With the weakening of EUR, in Europe the sectors of larger dependence on export income were among leaders, e.g., auto sector, chemicals and industrials. Furthermore, growth of US Treasuries and European government bonds contributed to a rather good growth of financial sector. The retaining geopolitical tension related to North Korea continues supporting defence related sectors.

On both markets, among the underperforming sectors were the ones traditionally deemed as defensive ­— telecommunications, utilities, consumer staples. Also, with the drop of metal prices, metals and mining sector temporarily stopped the growth trend showing decrease in the given month.

In September, stock funds under management of ABLV Asset Management showed returns commensurate with market in general.

Situation on the markets of corporate and emerging markets bonds was developing in a rather ambivalent way. In the first half of the month, these markets were also retaining positive moods due to common risk appetite. In both segments, spread tightening and growth of prices continued, the markets were waiting for the next FRS meeting rather quietly. As it was anticipated, the FRS retained the rates unchanged, therefore at first no reaction followed. Yet rather “hawkish” speech by the head of FRS Janet Yellen a few days later, when she announced regulator’s solid determination to continue interest rate growth policy despite the low inflation, caused a sharp growth of US Treasuries yields. This in turn triggered profit taking in emerging markets bonds, especially in long-term investment-grade bonds, which are more sensitive to the moves of the US Treasuries. Corporate segment, where the prices have dropped just slightly, once again turned out to be more resistant due to lower duration and positive mood on stock markets. As a result, all bond funds under ABLV Asset Management were able to retain the levels reached in the first half of the month and demonstrated 0.2–-0.6% return this month. The only exception was ABLV Emerging Markets USD Bond Fund, which due to market structure peculiarities and negative impact of falling US Treasuries, lost 0.45% in a week resulting in fund share price changing this month little, if at all.

In the medium term, we are still taking moderately conservative attitude. A share of cash both in bond and stock funds was cut this month using the correction on the financial markets. In bond funds, a significant part of assets is invested in medium term securities enabling to decrease volatility in case of negative events on interest rates’ market. Further decisions will be made depending on the development of situation on the financial markets.  

ABLV mutual funds’ return as at 30.09.2017

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

General information on ABLV mutual funds and management company ABLV Asset Management, IPAS, as well as all additional information can be found on ABLV Bank home page in the section “ABLV Mutual Funds”.

This comment is intended exclusively for informative purposes and cannot be considered as an investment recommendation or advice.