Market Review

While the last quarter of 2018 proved to be very challenging for markets, the first quarter of 2019 saw a remarkable recovery in market levels, primarily in the equity market. This was largely driven by the US Federal Reserve's rapid change in stance from December to early January. This change in direction for US interest rates, which signalled pausing for now, and perhaps for the rest of 2019, encouraged markets that central banks were prepared to keep policy flexible, if not accommodative, for the foreseeable future. Central bankers have been able to do this in light of the lack of inflationary pressures, which have been broadly absent since the Global Financial Crisis. Additionally, the People's Bank of China has already started to loosen monetary conditions, and there are early signs that this is beginning to stimulate Chinese economic conditions, which global investors have taken positively. While the US-China trade talks continue, the quarter also saw increasing confidence that these will be resolved relatively swiftly and satisfactorily, although this is potentially the market being optimistic, as the issue remains unresolved.

Elsewhere, economic conditions in the euro-zone were also difficult, with even Germany struggling in particular segments, especially car manufacturing. As a result the European Central Bank has also signalled a willingness to loosen policy further, in an effort to stimulate the region's economy. In the UK, Brexit continues to dominate, and while the UK was originally scheduled to have left the European Union by now, the stalemate within the British Parliament has led to at least one delay, and potentially further delays, much to the frustration of those in the British electorate who wish to leave and voted as such back in June 2016. This is causing the Bank of England to remain on hold in light of the Brexit uncertainty. In summary, the quarter has seen a turning point in central banks' likely interest rate path, and this has comforted market participants who have started to anticipate that the US economy may have already seen interest rates peak for this quarter.

While equity markets experienced one of their weakest quarters in the last quarter of 2018 since the Global Financial Crisis, the first quarter of 2019 has seen equity markets produce their best quarter since 2010, and it was the best first quarter since 1998. For the quarter, equity markets as measured by the MSCI World Index rose by 12.48%. The majority of this return was delivered in January, when the market rose by 7.78%, but February and March both saw equity markets make progress with returns of 3.01% and 1.31% respectively. While one can point to the declining rate of return, a 1% monthly return remains a healthy rate. Across the regions markets made strong progress, with North American equities leading the way and rising by 13.82%. This was followed by the Pacific excluding Japan region, which gained 12.24%, while Europe and Japan were the laggards, returning 10.84% and 6.66% respectively - although all are notable moves. Emerging Markets also made substantial progress, rising 9.91%, and hence underperforming Developed Markets, although this was really a function of February and March, as in January Emerging Markets delivered a return just shy of 9%, and thus outperformed Developed Markets for that month.

At a sector level, all eleven Global Industry Classification System (GICS) sectors delivered positive returns, and all but two delivered double-digit returns. The two main laggards were the Health Care and Financials sectors, which returned 8.14% and 8.41% respectively. Utilities managed to creep into double-digit returns with a gain of 10.02%. In contrast, the major winner for the quarter, having been one of the main losers of the fourth quarter, was Information Technology, which rose 19.57%. Real Estate was perhaps the surprising second best quarter, rising 16.15%. This sector benefitted from the change to the path of global interest rates, as a more interest rate sensitive sector. Energy was also one of the major rebound plays from the fourth quarter, and rose 14.44%. Industrials was the fourth best sector for the quarter. It rose 14.39%, and was the only othersector to outperform the wider market during the quarter.