Global equities – stabilisation as bond yields level out
Global equities continued to weaken in May, albeit with a smaller drop than evident in April – helped by tentative signs that the lift in global inflation and bonds yields may be near a peak.
The MSCI All Country return index declined by 0.2% in local currency terms after a decline of 6.5% in April. Reflecting a firmer Australian dollar, the decline in unhedged global equities was a little greater at 1.4%, following a decline of 2.5% in April.
Forward earnings continued to grow, rising by 0.9% in the month with current market expectations consistent with further growth of 4.6% by end-22 and 7.5% over 2023. Accordingly, it was the PE ratio that again drove equity prices lower, falling from 15.3 to 15.1 – to be now broadly back in the range of the pre-COVID period since 2013.
Helping support risk sentiment was a stabilisation in bond yields, with the yield on U.S. 10-year bonds easing from 2.94% to 2.85%. In turn, this reflects a stabilisation in the market’s one-year ahead U.S. Fed funds rate hike expectation at around 3%.
Lower bond yields and a lower PE ratio helped the earnings yield-to-bond yield gap (EBYG) increase slightly from 3.6% to 3.8% – though it still remains at the lower end of its range of recent years.
In a counter to recent trends, U.S. stocks did a little better than non-U.S. global stocks last month, though Australian stocks fared a little worse, even though growth stocks overall continued to underperform value stocks.
In terms of broad trends, the relative performance of the U.S. market appears to be weakening more clearly, in line with under-performance of growth versus value. Helped by stronger oil prices, the global energy sector was the strongest performer last month with a gain of 10.8%. Technology stocks declined by 1.1% after an 11.0% decline in April.
Global equity trends
Reflecting commodity price gains associated with the Russian invasion of Ukraine, commodity-related exposures such as energy (FUEL) and food (FOOD) retain the strongest relative performance trends among hedged global equity ETFs. Japanese stocks (HJPN) – helped by Yen weakness – are also displaying relative strength.
Among unhedged exposures, more defensive exposures such as UK stocks (F100) and global income (INCM) continued to hold up better, with weakness still broadly evident among the technology thematics.
Local resource stocks bounced back modestly in May after a setback in April, and retain the strongest relative performance trend among key Australian equity ETF exposures. Local technology stocks (ATEC) remain under downward pressure, while more value type exposures such as financials (QFN) and our fundamentally weighted Australian equity ETF (QOZ) have continued to hold up reasonably well.
BetaShares select Australian equity funds – performance
Source: Bloomberg, BetaShares. Index performance doesn’t take into account fund fees and costs. You cannot invest directly in an index.
Past performance is not indicative of future performance of any index or funds. Performance in each section ordered by 6/12 mth return performance.
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* Equity theme proxies: US: S&P500; Non-US: MSCI Ex-US Developed Markets Index; Growth vs. Value: MSCI Global Growth and Value Indices; Emerging markets: MSCI Emerging Markets Index; Australia: S&P/ASX 200 Index.
** Ranking based on average of 3 and 6 month performance and 6 and 12 month performance, excluding latest monthly return performance.
*** Trend: Outright trend is up if the relevant NAV return index is above its 10-month moving average and down if the index is below this moving average. Relative trend is up if the ratio of the relevant NAV monthly return index to the return index for the MSCI ACWI is above its 10-month moving average, and down otherwise.