Camel riders largely ignored the ongoing behavioral problems of the more sullen members of the herd last week. True, Vladimir continued with his incursions into a neighbor’s pen despite the Minsk II peace agreement, and Alexis continued for most of the week to demand the complete re-writing of a long standing debt repayment agreement with the other camels.
But despite these geo-political worries, global stock markets continued to rally, fuelled by ongoing positive growth data from the euro zone and the US (eg, strong February Purchasing Managers Indices (PMIs) in both economies), the prospect of
ongoing cheap oil and loose central bank monetary policy. Indeed, Nordea in Denmark is now offering a negative residential mortgage for some existing clients.
An interesting trend has been for cyclical, growth sensitive sectors to outperform defensive, value sectors. It is as if investors are preparing for a growth surprise and preparing their portfolios for higher interest rates. In such an environment, high dividend yielding defendice sectors can be expected to struggle relative to the market.
And to top it all the controversial Macron Law in France was pushed through by presidential decree, enabling France to show Brussels and Germany that it can reform. The highlight may appear modest by the standards of Margaret Thatcher, being an extension of Sunday trading from 5 days a year to 12, but within the context of French politics it is a milestone.
I expect this stock market rally to continue over the coming weeks, led by the euro zone. Particularly because on Friday we had what appears to be a climb down by the Greek government. The most significant risk to market sentiment is from the disruptive impact of a rise in US interest rates, possibly in June
Climb down by Greece
The risk of Greece being thrown out of the euro has been sharply reduced after what appears to have been a climb down on Friday by Greece, in its demand for a conditions-free bridging loan. Greece will now receive the final EUR 7.2bn of the (second) euro zone EUR 172bn bailout program that began in 2012, conditional on its government explaining to euro zone authorities and to the IMF on Monday what measures they will take to ensure continuing economic reform, and overseen by the very Troika (ie, IMF, ECB and European Commission) that Syriza vowed to rid Greece of when the party came to power three weeks ago.
30 day stock market returns are strong
It is easy for camel riders to focus on the day-to-day progress of the race, perhaps nervous of running into quicksand, and to lose sight of slightly longer term perspectives. Over the last 30 days some very strong gains have been recorded on global stock markets.
The FTSE 100 is up 7.1%(all indices are in local currency terms) and is now just short of its December 1999 high. But this does not mean that an investor who made a lump sum on the day the market last peaked 15 years ago is out of pocket; investors in a standard UK fund, holding Accumulating shares (ie, with dividends automatically re-invested), will be up by more than a third. Headline writers in the financial pages often forget this, focusing on the FTSE 100 price index (ie, capital only) and not the total return index (capital and dividends reinvested) which is what investors should be focusing on.
Meanwhile the German DAX up 7.7%, driving the rally in euro zone stocks that began last autumn, while the S&P 500 is up 3.7%. Japan is also in a rally, with the Nikkei 225 up 7.8%. But history suggests it may be dangerous to follow, since rallies in Tokyo tend to go into reverse with astonishing speed.
Emerging markets have continued to underperform, but nonetheless have recoded gains with the Indian BSE Sensex up 3.4% and the Hang Seng up 3.0%.