March 2014 Update
Markets bounce back in February
UK investors dusted themselves down after a disappointing January and returned to markets with new-found determination in February. Higher risk assets, notably equities, were the main beneficiaries of this bullishness. The FTSE 100 index finished up 4.6% for February.
The situation in emerging markets – the catalyst for January’s losses – stabilised for much of the month, although mounting political tensions in Ukraine at the end of February resulted in rising concerns among investors.
On the domestic front, the Office of National Statistics confirmed the UK economy expanded by 0.7% in the final quarter of 2013. Encouragingly, business investment was up 2.4% on the three-month period, and 8.5% higher last year than in 2012. This was warmly welcomed by politicians and economists alike.
The UK recovery had been largely dependent on the housing sector and consumer spending, but signs that the business community is starting to put its sizeable cash piles to work indicate that the recovery could be spreading. It also points to a growing confidence in UK plc.
Mark Carney, the Bank of England governor, was back under the spotlight after he announced he was effectively abandoning “forward guidance” just seven months after it was launched. Under this policy, interest rates would have remained on hold until unemployment dropped below 7%. With the jobless rate hitting 7.1% at end-November, it was thought that this threshold could be reached within months.
This forced Mr Carney to perform a swift about-turn. He reassured borrowers that rates will stay where they are for the time being, but muddied the waters slightly by adding that future policy will be determined by a wider range of indicators, including the amount of “spare capacity” in the economy.
Reaction was mixed. Forward interest rates show that investors still do not entirely believe that rates will remain this low for long. Equity markets, though, responded well to the prospect of further cheap borrowing.
Elsewhere, the US stock market also enjoyed substantial gains. Despite freezing weather conditions in much of the US, Wall Street thawed enough for February to finish on a high note – the S&P 500 index reached a record closing high of 1,859.5 on the final day of the month.
However, the US market’s gains were attributable to a general bounce-back in investor confidence rather than any evidence of an improving economic background. For the most part, economic releases made during the month were disappointing, with many commentators (including the head of the US Federal Reserve, the US central bank) attributing the poor performance to the inclement weather.
Poor economic data is normally good news for government bond markets; however global government bond markets were little changed during the month.
Meanwhile, the great commercial property turnaround appears to remain on course. Investment Property Databank figures released during February reported another positive month for UK commercial real estate. Values rose a further 0.6% during January (the latest data available), with a total return of 1.1%. So far, property values have enjoyed nine consecutive months of steady increases, with a cumulative rise of 9.8% since May last year.
Should I make any changes to my investments?
Everyone’s circumstances are different and we aren’t able to give you advice on what is appropriate for you. As always, if you are considering your own position, you should remember why you invested in the first place and consider the lifespan of your investments. Most importantly, you should seek financial advice before making any changes to your investments.
One way in which you can help reduce the impact of any market volatility is to spread your investments across different asset classes and regions. For more information about investing across different asset classes, take a look at our An introduction to diversification in multi-asset funds guide.
Remember that before making any changes to your investments, you should seek financial advice. If you don’t have a financial adviser, you can find one local to you by visiting find a financial adviser, which is responsible for promoting financial advice in the UK.
Investment markets and conditions can change rapidly and, as such, the views expressed in this Update should not be taken as statements of fact nor be relied on when making investment decisions. Forecasts are opinions only, can not be guaranteed and should not be relied on when making investment decisions.