An update on the 17th February from Momentum Global Investment Management, following sharp falls in equity markets, we advised investors to stay invested; we believed that markets were discounting many of the uncertainties driving investor fears and that the falls in the preceding few weeks represented a very good opportunity to add to risk in portfolios.
Since then there has been a sizeable rally in risk assets, led by those markets that had fallen the furthest in the past year. Commodity markets, especially energy and industrial metals, had been in virtual free fall for 18 months but since late January the oil price has recovered by almost 50% to around $40 per barrel for Brent crude and key metal iron ore is up by over 50%; other metals have risen less sharply but nevertheless very significantly, including copper up by 17% from its lows. It’s no coincidence that emerging equity markets, many of which are heavily dependent on energy and metals production and therefore highly sensitive to commodity prices, turned on the same day that the oil price bottomed. Since then they have since returned 17% in USD terms, led by Brazil, up almost 50% from the low. Commodity dependent currencies have also rallied sharply, with the Australian dollar, Canadian dollar and South African rand up by around 10% and the Brazilian real and Russian rouble by close to 15%. Developed equity markets reached a low point in mid-February, since then they have recovered by 11%, led by Europe and Japan. Credit markets have fully participated in the improved sentiment and market recovery, with returns since mid-February ranging from 2% in high grade credit to 6% in emerging market debt and almost 9% in high yield bonds, whereas government bond markets, where yields had fallen sharply as investors turned to traditional safe havens in a time of rising uncertainty, have sold off, with yields on 10-year government bonds rising by some 20bps in the US, UK and Germany.