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Markets and Your Money: Mad March bulls

India, emerging markets and Europe led the bulls in March
April 6, 2017

Followers of US basketball will already know that March means Madness - the annual month-long tournament. And it looks like that sentiment is reaching global equity markets too, which continue to rise.

"Christmas has not arrived early, but investors seemed to have ended March and the first quarter full of good but not wholly warranted cheer," says Alastair Winter, chief economist at Daniel Stewart & Company. "As usual, the most festive were the US bulls, who took about two trading days and the weekend to convince themselves that President Trump's defeat on Obamacare was not so important after all and what really matters are tax cuts, which they are confident will send US Inc's profits soaring."

In March President Trump hit one of his biggest hurdles to date when his plans to repeal and replace Obamacare - healthcare provision for Americans who do not have health insurance - hit the skids. The failure could have triggered some nervousness over his ability to enact the major infrastructure spending plans that have kept US markets buoyant, but that was not the case. According to Mr Winter, equity investors are currently the most bullish on US equities since 2008, with the market pricing in less than 10 per cent probability of a bear market in the next 12 months.

That complacency is feeding through to a bullish mood elsewhere, with investors seeking out opportunities in emerging markets, India and Europe.

Indian equity funds have dominated both the open-ended and closed-ended fund rankings for the month. The stock market is bouncing back following a shock in the second half of last year, when Prime Minister Narendra Modi shocked investors and consumers alike by scrapping high-denomination rupee notes. But this year the rupee has strengthened significantly and investors have flocked in to Indian financials in particular.

Laith Khalaf, senior analyst at Hargreaves Lansdown, says: "Indian funds dominate the top of the fund performance table for 2017, as investors continue to buy in to reforms being put in place by Narendra Modi. India's biggest asset is its young population: around a quarter of the world's under-25s live there and as more young people move to the cities, and their aspirations grow, lifestyles are changing. There is a large and growing middle class of several hundred million citizens with rising incomes, who are likely to fuel the next leg of economic growth."

European equities are also up. Between 1 March and 31 March 2017, the Euro Stoxx index rose 3.27 per cent in sterling. The market bounced following the outcome of the Dutch elections, in which far-right candidate Geert Wilders was defeated by incumbent Prime Minister Mark Rutte. According to TD Direct Investing, European equities had become too cheap, sending investors back into those markets.

The question is what will happen to this picture if the steady stream of central bank liquidity is taken away. Tom Becket, chief investment officer at PSgima, says: "The recent revelations from within the European Central Bank, Bank of England and Bank of Japan that a more hawkish - it's not hard - approach is coming are interesting. We wonder whether the equity and credit markets have really factored in this change. Markets might well be operating in 'La La Land' at the moment, but as we all know from the Oscars debacle La La Land doesn't win for very long. There is a chance that reality bites soon."

 

The winners and where to position

India funds triumphed in March, with six of the top 10 performing open-ended funds in the four weeks to 4 April focused on this country's equity markets. These included Jupiter India (GB00B4TZHH95) and GS India Equity portfolio (LU0858290173) which both returned more than 7 per cent over the four weeks to 4 April 2017, and Matthews Asia India (LU0594558263) and Fidelity India Focus (LU0457960192).

The 10 best-performing investment trusts over the four weeks to 4 April include India Capital Growth (IGC), which also had the biggest share price increase of all investment trusts over the first quarter of the year according to broker Stifel, with a 23 per cent rise.

Investors also continued pouring money into the information technology and healthcare sectors in March, according to MSCI. IT and healthcare stocks have been the best-performing sectors within the MSCI All Country World index for two months in a row, while energy stocks remain the worst. Brent Crude oil suffered a big fall throughout the month and was the worst-performing Bloomberg sector. A combination of oversupply and lack of agreement among producers have helped drive oil prices down.

The most expensive sector of the MSCI All Country World index is Real Estate, with a forward price/earnings (PE) ratio of 22, while financials is the cheapest with a forward PE of 12.3.

 

The market in a minute

Style: Momentum UP, Minimum volatility DOWN

Assets: Equities UP bonds DOWN

Sectors: Utilities, energy DOWN, IT, healthcare UP

Equities: Emerging market, Asian equities UP, Japan DOWN

Bonds: US government bonds UP, high-yield bonds DOWN