The shortest month of the year passed without any major surprises, with the common thread of economic optimism balancing against political uncertainty. Donald Trump was the obvious talking point with further hyperbole regarding his policy stance, whilst increasing scrutiny in Europe also played a dominate role.
Within equities, strong economic and corporate data in the U.S. helped push equities higher. A similar theme was evident elsewhere, as emerging markets saw a material increase that edged out developed markets. In fact, the emerging market and developed market indexes delivered a strong 3.3% and 2.8% respectively in US dollar terms for the month. Of the sectors, defensive quality stocks were standout in February, with healthcare and technology excelling by more than 5% in US dollars. To the downside, materials and energy lagged as the only sectors delivering a negative return for the month.
European exposure also acted as a subtle drag following political uncertainty in France. With the French presidential election result set for the May 7, it is little wonder investors are getting nervous. This shaped bond markets through the month, with French and peripheral European countries government debt underperforming relative to ‘safer’ markets such as the U.S. and Germany. Overall, the global fixed income index rallied 0.5% in US dollar terms, while emerging market debt also increased a further 2.2%.
What Next for Markets?
Looking forward, March could be an interesting month. Given that Brexit has now gained the required approval of parliament, it is on track to be officially triggered by the March 31. Therefore, while the U.K. market is seemingly welcoming the shorter-term solidarity – evident by the lowest FTSE 100 volatility since the referendum and a further 3.1% rise in equities through February in sterling terms – one must appreciate the broad range of potential scenarios over the coming months and years ahead.
The same context can be applied in central Europe. The Dutch election is set for the March and further polling in the French election race is likely to stir excitement. The key will be to look through this noise and focus on the fundamental drivers of the underlying market.
