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Market Update

July 2014 Update

Central Banks are making waves in choppy waters

UK equities turned in a negative performance in June, taking indices back towards where they’d been at the start of the year. Despite creeping up towards the 6,900 mark in the first half of the month, the FTSE 100 index later suffered from a drop in investor sentiment, finishing lower by 1.5% over the month as a whole.

Shares in technology, telecoms and financials were among the biggest fallers, which was partly a continuation of the defensive theme that has predominated throughout the year so far. The energy sector performed better. Shares in BG and BP rose as the price of oil spiked early in the month, amid fears that Iraq’s apparent descent into civil war would disrupt supplies.

Looking overseas, European equities followed a similar pattern to those in the UK, finishing the month slightly down. The FTSE World Europe (ex-UK) index fell 2.3% in total return terms. There were initial gains, driven by investors’ positive reactions to new measures from the European Central Bank. These were announced at the start of the month, and were aimed at banishing deflation. The measures included a move to reduce the main interest rate to 0.15%; the implementation of a negative deposit rate (banks will now be charged 0.1% on the deposits they hold with the central bank, instead of earning interest); and the implementation of a €400 billion conditional loan programme to banks.

By contrast, the US stock market performed relatively well, boosted by assurances from the US Federal Reserve’s chair Janet Yellen that interest rates would not rise in the near future, and that inflation remains under control. But the strongest performer among the main markets was Japan, which turned in an impressive total return of 5.3% in yen terms.

Bond markets were also affected by the pronouncements from central bankers. For example, a reassuring US employment report at the start of the month highlighted that the economy had recovered all the jobs lost since the beginning of the financial crisis. This led to a fall in bond prices and upward pressure on Treasury yields. However, a continued lack of wage inflation – combined with Janet Yellen’s reassurances – has encouraged the belief that the Federal Reserve will keep interest rates low for the time being. This helped mitigate the rise in yields.

Meanwhile, the UK commercial property market continued to show evidence that it is thriving. Strong investor sentiment and a limited supply of quality properties have helped provide further gains for property investors. Capital values have risen for the last 13 consecutive months, resulting in a cumulative rise of 8.8%. That said, prices are still 31.9% below their 2007 peak.

Overall, the real estate recovery continues to be fuelled by strong buying activity, rather than rental growth. Rents remain lacklustre at an all property level, rising only 3.7% so far this year, and driven entirely by growth in the office and industrial sectors.

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 30 June 2014 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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