Blog

Most asset classes posted gains in March on the back of improved economic data globally as well as expectations that central banks will begin cutting rates by year end 2024. 

Equity markets continued their upward trend with broad based gains across regions in March.   UK equities (+4.4%) were the best performing market.   The March Budget was delivered in the UK and the messaging was positive – Britain’s recession is over; inflation is under control and interest rates will be cut. This led to the office for Budget Responsibility (OBR) forecasting the UK economy will be growing above trend by the end of the year.  The US also posted decent gains (+4%) as the economy remains resilient with better-than-expected manufacturing and retail sales data reported.  Overall, equities were the best performing asset class over the 1^st quarter with both the US and Japan delivering double digit returns over the period (11.2% & 12.2% respectively).  Outside of developed markets, we have seen a rebound in Chinese equities over the past two months.  Despite its ongoing property sector weakness – economic and inflationary data had improved owing to strong demand during the Lunar New Year period which helped lift these stocks which are trading at historically low valuation levels.

Bonds saw some in recovery in March with both government and corporates ending the month in positive territory.   The best performing part of the market was the UK government index which delivered a +2.6% gain over the month.  This came off the back of the Bank of England suggesting the rates could be cut starting in the summer.  Despite the gains in March, UK gilts and other G7 sovereign bonds have still posted modest losses year to date.   This is due to the shift in interest rate expectations.   Bonds rallied sharply at the end of 2023 on expectations that central banks would cut rates anywhere from 6-7 times in 2024.  At this point, markets are pricing in closer to three rate cuts and the timing of cuts keeps getting pushed out further as inflation data remains sticky. 

Within the alternatives space, there were gains in the commodity sector, notably in precious metals. Ongoing geopolitical conflicts in the Middle East and Ukraine continue to drive the flock to ‘safe haven’ assets.   This uncertainly has led central banks to boost their gold holding and push the price to all-time highs.  Meanwhile further escalation in Gaza and the Middle East has also lifted oil prices at a time when OPEC continues to agree to production cuts enacted last year.  Property and infrastructure investments also generated gains over the month.

It’s been somewhat of a mixed start to 2024 as equities and bonds returns have diverged. Inflation and interest rates are likely to dominate investor sentiment and market returns. At this point, better than expected global economic growth coupled with recent signs that inflation has not entirely dissipated suggests that central banks may be on hold for a little while longer.