Riga, Latvia, 10-2-2014 — /EuropaWire/ — January in global stock market can be divided into two parts. During the first half of the month, trends of the previous year were continued – decoupling in stock markets of developed and emerging countries.
Most emerging countries started the month with a drop, while moderately positive dynamics were observed in markets of developed countries. However strengthening negative mood in markets of emerging countries caused wide correction resulting in considerable losses for the global stock market. The rapid change of mood was accelerated by unfavourable news. These were worsening macroeconomic data, first of all in China, and political instability in particular emerging countries, as well as quarter reports of the US corporations, although not bad, but still not meeting the expectations of many investors. Moreover, there were concerns due to continuation of falling currency rates in most emerging countries. All those factors added to the decision on taking profit made by some market players following the rapid growth in 2013.
The manager of ETF funds used this situation to decrease the cash component, since we continue to be optimistic about global stock market and consider the causes of current correction in the stock market to be rather of psychological, emotional nature than fundamental ones. We expect the correction to be short-term one, and then positive trends will return to the global stock market. Currently, in global market funds major positions are concentrated in ETFs of developed countries. However, we expect the storm currently present in emerging countries markets, mostly in currency ones, to stop, and the situation to become stable. Then we will consider the possibility of restructuring funds’ portfolios in order to increase the portion of emerging countries that we believe to ensure better investment opportunities.
In funds of industry-specific ETFs, the cash component was reduced in accordance with the strategy. The industries that we consider to have the highest growth potential were preferred for buying.
In the global bond market, during the first half of the month, given the overall favourable environment, there were yield decrease in the US government bond segment and risk premium (credit spread) decrease in the segment of the bonds of emerging countries observed. Nevertheless, in the last third of the month the investors’ mood changed, after some data on production growth in China and the USA has not met the expectations.
The continued decline of currency rates of emerging countries and political instability in some of those added to nervousness and caused the surge of selling all risky assets, also in bond market. This was accompanied by rather large amount of new government bond issues, leading to the most pressure on prices exactly in this sector.
The sector of corporate bonds suffered less, and it remained positive over the month, due to substantial price increase at the beginning of the month and high coupon yield.
The bonds denominated in euro once again demonstrated outperforming dynamics. Investors’ demand for this sector is retained, since, unlike the USA, eurozone regulatory authorities do not rule out the possibility of increasing monetary policy stimulation.
The fund managers continue to keep to moderately conservative strategy, preferring bonds with high coupon yield and relatively low duration, since those are less sensitive to negative mood in the markets.
The funds’ performance results as at 31 January 2014 can be found at ABLV Bank home page in section “ABLV Mutual Funds”.
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