Summer Global Equities

Global equities performed well across both developed and emerging markets during March. In the US the S&P500 rose 3.1% while the Stoxx Europe 50 Price index – Europe’s leading Blue-chip index – was up 4.22% and UK FTSE100 gained 4.23%. Asian stocks were mixed, with the Tokyo Stock Price Index (the TOPIX) up 2.81% but the Hong Kong and China markets were both flat. 

Just as inflation did not go up in a straight line, it is not coming down in a straight line either, with the March quarter showing some inflation ‘stickiness’ in key markets. US interest rate markets pushed out the date of the first expected Central Bank cut. US Equities continued to do well on stronger economic growth – forecasts being revised for 2024. Despite stronger economic growth, profit forecasts are not accelerating, and the strength in the market keeps pushing US valuations higher in our view. 

The Bank of Japan ended the world’s last negative interest rates regime in March as wage growth and their economy supported higher interest rates. The Japanese Yen (JPY) weakened against major currencies. China’s economy continues to grow at modest pace with both manufacturing activities and services sectors accelerating but continued lower employment numbers. 

Summer Global Equities delivered a return net of fees and before tax of 4.14% in March For the 12 months to the end of March the fund delivered a return net of fees and before tax of 25.68%.

Value stocks performed well over the month while growth stocks lagged, and returns were not as concentrated as in previous months with the ‘Magnificent 7’ no longer dominating returns. This is perhaps best illustrated by the fact that 85% of US stocks are now trading above their 200-day average price. Sector performance was broad-based. Cyclical sectors of the economy outperformed including Energy, Financials, industrials and materials.

On the currency front, our hedging overlay detracted value as the New Zealand dollar reversed some of its gains against the US dollar.

We actively manage the fund’s foreign currency exposures. As at 31 March 2024, these exposures represented 99.35% of the value of the fund. After allowing for foreign currency hedges in place, approximately 42.04% of the value of the fund was unhedged and exposed to foreign currency risk. 

The recent increase in interest rates globally has reflected a stronger economic backdrop than we and the market had expected. Employment has remained well supported in most markets, and companies continue to report solid profit margins, which in turn supports equity market returns. 

Our view is still that the US equity market is overvalued. Whilst we had an expectation of economic weakness leading to weaker profits and job losses, this has yet to occur. Instead, we see share prices that reflect an overly optimistic view of future profitability. Other global markets are more reasonably priced yet have weaker current economic growth. 

Interest rate cuts on weak demand and falling inflation is still our base case. We now expect the EU and UK to cut rates before the US, but all markets will be supported by a move to less restrictive financing conditions. 

Outside of the US and Australia, we continue to expect near term weakness in economic activity, with an increasing risk of higher unemployment feeding into ongoing profit weakness. We continue to see equity markets as being more likely to look forward to the ensuing economic recovery, than get focused on another six months of profit weakness.