Overall Market Summary:
Global shares rose in April, bolstered by resilient economic data. However, emerging markets underperformed developed markets due to weakness in Chinese shares. In fixed income, all major credit markets generated positive returns.
United States:
US equities made modest gains in April. Investor optimism about the Federal Reserve's (Fed) expected moderation of monetary policy was tempered by warnings that economic growth may soften. The banking sector continued to face uncertainty.
The imminent collapse of First Republic by the end of April marked the largest casualty of 2023's banking sector stress. Acquired in a deal between the US government and JP Morgan, investors took the news in stride, and US banks in the S&P 500 index collectively advanced in April. Nonetheless, apprehension lingered over smaller banks.
Consensus remained that the Fed would raise rates by 0.25 percentage points in May, then pause further tightening. Economic data indicated waning growth, a weakening labor market, and more controlled inflation in recent months.
Equity market performance was driven by gains from some of the largest companies, particularly in tech. Industrial and consumer discretionary stocks lagged, with notable weakness in Tesla shares due to increased competition in the global electric vehicle market.
Europe:
Eurozone shares made gains in April, with all sectors advancing except information technology (IT). Resilient corporate earnings supported shares, with energy and real estate among the top performers after a weak start to the year. Utilities also saw gains, while the IT sector fell due to warnings from semiconductor companies about prolonged demand slowdowns.
Data showed the eurozone economy grew by 0.1% quarter-on-quarter in Q1, after zero growth in Q4 2022. Germany's economy stagnated, while Spain and Italy saw stronger expansion. Germany's inflation slowed to an expected 7.2% year-on-year in April, down from 7.4% in March.
The flash eurozone purchasing managers' index (PMI) for April reached an 11-month high of 54.4, driven by the services sector, while manufacturing output declined.
United Kingdom:
UK equities rose in April, led by financials, particularly the banking sector, which recovered as fears over US banks eased. Globally diversified energy groups contributed significantly, supported by a recovery in oil prices after Saudi Arabia's surprise production cut.
Domestically focused sectors performed well despite disappointing inflation and wage data, which led to higher UK interest rate expectations. Headline UK inflation remained above 10% in March, contrary to expectations. Core inflation was unchanged from February, prompting expectations of further rate hikes by the Bank of England to control inflation.
Japan:
The Japanese stock market continued its positive momentum in April, with the TOPIX Total Return index up 2.7% in local terms. The yen weakened further as the Bank of Japan (BoJ) under new Governor Ueda maintained a dovish policy stance. Yen weakness supported investor sentiment but reduced returns for overseas investors.
Foreign investors purchased Japanese stocks at a high pace, driven by initiatives to boost corporate values and stock prices for companies with a price-to-book ratio below 1. The "Buffett effect" also played a role, as Warren Buffett increased his investments in Japanese equities.
The macroeconomic environment showed recovery, primarily due to inbound consumption. Inflation remained high, and wage growth accelerated following spring wage negotiations. Retailers reported positive quarterly earnings, and annual results for the Japanese fiscal year showed resilience. Macro environment momentum, yen weakness, and a focus on corporate governance reforms supported a positive outlook for corporate profits.
Asia (excluding Japan):
Asia ex Japan equities recorded a negative performance in April, with declines in China, Taiwan, and Thailand offsetting gains in Indonesia and India.
China was the weakest index market in April, despite faster-than-expected economic growth in Q1. Ongoing US-China tensions dampened investor sentiment. Taiwan's shares also declined due to weaker global demand for semiconductors.
Indonesia was the best-performing index market, driven by efforts to become a major player in the global electric vehicle supply chain through its nickel reserves. Indian equities saw robust gains, particularly in real estate and IT stocks.
Emerging Markets:
Emerging market (EM) equities declined in April, underperforming developed markets due to renewed US-China tensions.
China was the worst-performing index market, despite positive economic data including strong Q1 GDP growth. Taiwan also performed poorly.
Turkey declined for a second month amid rising political uncertainty ahead of May's presidential elections. Chile underperformed due to a national lithium policy announcement. Korea fell, although less than the index, impacted by currency depreciation against the dollar.
South Africa recorded a small gain, behind Mexico, Brazil, and Colombia. India outperformed with positive macroeconomic data, including better industrial production and easing inflation. Saudi Arabia posted positive returns due to rising oil prices after OPEC production cuts. Indonesia also outperformed as the rupiah appreciated against the dollar.
The CE3 markets (Czech Republic, Hungary, and Poland) delivered strong returns, with Poland up double digits in US dollar terms as the best-performing index market. European gas prices fell in April, with gas storage near record highs.
Global Bonds:
Bond yields rose in April, with markets anticipating further near-term rate hikes from the Federal Reserve, Bank of England, and European Central Bank. The UK gilt market underperformed as resilient activity data and surprising inflation pushed yields higher.
The Bank of Japan (BoJ) maintained its loose monetary policy, keeping interest rates very low but announcing plans to review past policy moves.
US bond yields were largely flat, with the 10-year yield slightly down from 3.47% to 3.42% and the two-year yield edging down from 4.03% to 4.01%. Germany's 10-year yield rose from 2.29% to 2.31%. The UK's 10-year yield increased from 3.49% to 3.72%, and the two-year yield rose from 3.44% to 3.78%.
All major credit markets generated positive returns in April as markets rebounded from the volatility of March. Spreads tightened, resulting in positive total returns across investment grade and high yield bonds.
The US dollar weakened against the euro and sterling, while the yen weakened against the dollar following the BoJ's announcement. Overall, the US dollar index remained largely unchanged.
Convertible bonds could not benefit from stock market tailwinds, with the Refinitiv Global Focus convertible bond index down 1%. The information technology bias and underweight in financials held back convertible bonds in April. However, primary market activity remained strong, with $5.7 billion of new issuance, mainly in the US and Asia.