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Market Update

May 2015 Update

Jittery bond markets take the shine off good news elsewhere

Domestic equities started May on the front foot, as investors reacted favourably to the unexpectedly clear result of the UK general election. Most polls had predicted a hung parliament, which could have resulted in protracted negotiations as political parties organised a ruling coalition. But an overall Conservative victory led to relief that there would be no intervening period of uncertainty.

The post-election positivity proved short lived though, with events overseas leading to a period of turbulence. In particular, there were worries about the sudden rise in bond yields, most notably in Germany. Although there were several factors behind the bond market’s sudden lurch, one of the main reasons was a spurt in the price of oil. Investors feared this could stoke inflation and bring forward interest rate rises.

US equity markets made only a small gain over May, despite reaching a record high in the third week of the month. Returns were boosted by better than expected first quarter corporate earnings. Elsewhere, European equity markets gained ground despite the continuing debt debacle in Greece, while Japan’s Nikkei 225 index made further progress, culminating in its longest winning streak in more than 25 years.

May was volatile for government bonds, although yields ended the month close to where they started. Much of the focus has been on the Eurozone and, in particular, on German Bunds. Following on from a dramatic sell-off in the last two weeks of April – when the ten-year yield moved from a record low of 0.05% to 0.36% – there was more of the same in early May. Corporate bonds underperformed compared with government bonds, a reflection of the prevailing mood of economic uncertainty.

The rate of growth of the UK commercial property market appears to be slowing slightly. Investor sentiment remains surprisingly strong, though, given that there are now signs of overpricing in key markets.

Finally, commodity prices resumed their downward path during May, although there was a good deal of volatility within the various asset classes. The rising dollar was responsible for much of the weakness. In general, the prices of commodities tend to move in the opposite direction to the US currency, as most commodities are priced in dollars, making them more expensive during times of dollar appreciation.

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.

All figures quoted are in sterling terms to 31 May 2015 unless otherwise stated.

The information contained in this article has been derived from sources which we consider to be reasonable and appropriate. It may also include our views and expectations, which cannot be taken as fact.

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.

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