31st May 2023

Cappuccino Commentary

A relaxed read on the issues of the day

April saw equities in the western hemisphere deliver positive returns, with the UK Equity market delivering the strongest return of +2.5%. Resilient economic data was the main driver for the positive returns. While the emerging markets were generally weak, delivering negative returns, notably we saw weakness from the Chinese stock market.

UK equities had a strong month. Financials were the top contributor, driven in part by the banking sector, which saw a recovery as the fears around the health of the US banking sector began to subside. The oil price rallied over the month, after Saudi Arabia announced a surprise decision to cut production, driving positive returns for the large cap diversified energy sector. Domestically focused sectors surprisingly held up well, given the fact that inflation and wage data was stronger than forecast, leading to increased probability of further interest rate rises. However, this part of the marker has seen a significant drawdown over the last 12/18 months, the resilience could be an indicator that a lot of the bad news expectations are baked into process. Inflation was more persistently stubborn failing to fall below the 10% level which was the market expectation, instead coming in at 10.1% (the expectation was for 9.2%).

European equities also had a positive month delivering +2.0% return. We saw a range of corporate earnings coming out from European companies that were generally better than forecast, which was the primary driver. At the same time inflation is starting to recede. On a forward-looking basis the Eurozone Purchasing Managers Index (PMI) came in a 54.4, a 12-month high. A reading above 50 indicates economic expansion.

Emerging markets delivered negative returns for the month, as renewed US-China tensions arose. These concerned Taiwan, as well as potential new restrictions from the US government in relation to direct investments in China. China was the worst performing region, for the above-mentioned reason. However, the macroeconomic data coming out was much better than expected, seeing Q1 GDP growth and improved export performance.

Bond market returns for the month were mixed. UK and global government bonds delivered negative returns, while UK and global corporate bonds were positive. Markets are anticipating further near-term rate hikes from the Fed (in the US), Bank of England and the European Central Bank (ECB). UK government bonds (Gilts) were the worst performer, as economic activity was more resilient than expected and inflation surprised to the upside. Corporate bonds were positive as yields tightened. Markets recovered from the broad-based sell-off we saw post the events surrounding Silicon Valley Bank (SVB), Signature Bank & Credit Suisse. Investment grade bonds and high yield bonds delivered positive returns.

Commodity markets recorded negative returns for April. Agriculture, industrial metals and energy were the worst performing sectors. OPEC made a surprise decision to cut the production of oil by one million barrels a day. However, this did not stop the decline in the price of crude or Brent oil.

In aggregate it was a mixed bag of returns across the different asset classes, highlighting the benefits of global diversification across portfolios.


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    Copia Capital Management

    Hamilton House, 1 Temple Avenue, London, EC4Y 0HA

    Understanding the risks

    This information is intended for professional financial advisers only. Copia does not provide financial advice. This information is not intended as financial advice and should not be interpreted as such. Model investment portfolios may not be suitable for everyone. The value of funds can increase and decrease, past performance and historical data cannot guarantee future success. Investors may get back less than they originally invested.

    Copia Capital Management is a trading name of Novia Financial Plc. Novia Financial Plc is a limited company registered in England & Wales. Register Number: 06467886. Registered office: Cambridge House, Henry St, Bath, Somerset BA1 1JS. Novia Financial Plc is authorised and regulated by the Financial Conduct Authority. Register Number: 481600.

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