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Global stock market and funds sector review – signs of slowdown?

We look at how different economies and regions around the globe have been coping, and how global funds and stock markets have performed.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

The road to recovery is never a smooth ride and recent months have been a reminder of this. Following the announcement of a successful vaccine in November 2020, global stock markets steamed ahead. But more recently the brakes have been applied and signs of slowdown are beginning to show.

In this quarterly sector review, we look at how different economies, regions and fund managers have been getting on.

This article isn’t personal advice. If you’re not sure whether an investment is right for you, please ask for financial advice.

A balancing act

Since the outbreak of Covid-19, investors have kept a close eye on case numbers around the world. But with the rollout of vaccines worldwide, attention has turned towards immunity. At the time of writing, over 6.3bn doses have been administered worldwide.

Countries like the United Arab Emirates (UAE), Portugal and Singapore have made particularly good progress with over 80% of their eligible population being fully vaccinated. But for others, especially those within emerging economies, developments have been much slower.

While the worst appears to be behind us, the global economy is still in recovery mode. Governments and central banks worldwide intervened to try and limit the financial hardship for their citizens. Already low interest rates were reduced even further in an effort to stimulate activity by making borrowing cheaper. Public debt also reached new heights. But while policies aren’t likely to drastically change, we’ve already started seeing signs of this unwinding.

So far this year, several central banks have started to increase interest rates in order to ‘cool down’ their economies, especially within emerging markets. For example, the Central Bank of Brazil increased its key interest rate by 1%, the biggest single rise since 2003. South Korea was one of the first Asian economies to increase rates. Some forecasts for developed markets like the US and UK are also predicting interest rate rises this year.

But why are policymakers starting to put the brakes on? Covid-19 isn’t the only factor that plays into their decision making. Rising levels of debt and inflation also need to be considered and balancing these forces is a difficult task.

Year on year headline inflation (%)

Source: J.P. Morgan Guide to the Markets as at 30/09/2021.

Inflation has reached decade highs in some parts of the world with pricing pressures coming from all angles. Lots of consumers have squirreled away plenty of cash after being ‘locked down’ for over a year which has resulted in a surge of spending activity. Labour shortages coupled with increased costs for raw materials and transportation are also having an impact.

On a more positive note, lots of central banks including the US, UK and EU believe the current level of inflation is only ‘transitory’ and should therefore only be a short-term phenomenon.

How have global markets performed?

Over the past 12 months, the FTSE World Index has grown 24%*, making it one of the strongest years of growth to the end of September in the past 20 years. More recently growth momentum has shown signs of slowing. The three-month period to the end of September 2021 was notably weaker than the previous three quarters.

Quarterly percentage growth

Past performance is not a guide to the future. Source: *Lipper IM, to 30/09/2021.

After delivering weaker returns in 2020, the UK stock market has been one of the strongest performers, with the FTSE All-Share returning 27.9%* over the past 12 months. Sectors that did poorly in 2020, like oil & gas, financials and consumer services, have also roared back into action. The opportunities available within the UK market have also caught the attention of overseas investors. The number of mergers and acquisitions has been on the rise and private equity investors have been willing to pay record premiums for UK businesses.

It’s been a mixed bag for the rest of Europe, with the FTSE Europe ex UK growing 23%. France and the Netherlands were among the top performers, while Germany and Switzerland didn’t do so well.

Growth in the US, the largest component of the global stock market, continued to outperform the broader market with the FTSE USA returning 24.7% over the past 12 months. Sectors that rely on the health of the economy, like industrials and financials, have been some of the strongest performers.

Although it lagged other stock markets over the past year, the three months to the end of September 2021 were especially encouraging for Japan. Vaccination rates have picked up considerably and so has the demand for exported goods, a key driver of their economy. With a new prime minister at the helm, investors wait in anticipation to see what’s in store for the world’s third largest economy.

While emerging markets have generally lagged global peers, the standout underperformer has been China. Over the past 12 months, the FTSE China Index fell by 5.1%. Stricter regulation surrounding education, gaming and internet platforms to name a few have seen sentiment towards the region fade. The recent collapse of highly indebted real estate company Evergrande has sparked concerns of its financial challenges spreading worldwide.

Will the Evergrande crisis drag China down with it?

Annual percentage growth

Sep 16 - Sep 17 Sep 17 - Sep 18 Sep 18 - Sep 19 Sep 19 - Sep 20 Sep 20 - Sep 21
FTSE All-Share 11.9% 5.9% 2.7% -16.6% 27.9%
FTSE Asia Pacific ex Japan 15.8% 5.2% 4.1% 8.4% 13.9%
FTSE China 25.1% -2.3% -1.5% 33.5% -5.1%
FTSE Emerging 16.6% 2.0% 7.1% 4.7% 14.0%
FTSE Europe ex UK 22.6% 2.4% 6.9% -0.3% 23.0%
FTSE Japan 11.4% 13.9% 0.3% 2.6% 16.9%
FTSE USA 15.0% 21.2% 10.2% 11.3% 24.7%
FTSE World 15.4% 14.2% 7.9% 5.2% 24.0%

Past performance is not a guide to the future. Source: *Lipper IM, to 30/09/2021.

How have our Wealth Shortlist funds performed?

Global funds on the Wealth Shortlist have provided mixed results over the past 12 months. This is what we expect given they use a variety of different investment styles and approaches. If all funds in a given sector are performing well at the same time, they're probably investing in similar areas. Those areas won't perform well all the time, so it can be painful when they're out of favour.

For more details on each fund and its risks, please see the links to their factsheets and key investor information below. All investments fall as well as rise in value, so you could get back less than you invest.

Investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

Jupiter Global Value Equity was the best performing Wealth Shortlist fund in the global sector over the past 12 months, returning 33.3% versus 23.9%* for the IA Global sector average. Past performance is not a guide to the future.

Managers Ben Whitmore and Dermot Murphy hunt for companies whose share prices, in their opinion, don’t reflect their true worth, so can be bought at an attractive price. This style is known as ‘value’ investing. Until its resurgence in late 2020, value has been out of favour for several years, as the market has generally rewarded companies focused on growth. That said, our analysis suggests their recent outperformance has been down to their stock selection, not style bias.

In contrast, Trojan Global Income was the weakest performer. Over the past 12 months, the fund’s returned 8.8% versus 22.4%* for the IA Global Equity Income sector average. Performance has been disappointing in the short term. But since the fund launched in November 2016, it’s kept pace with peers while facing some of the lowest volatility of any fund in the IA Global sector. Although that's not a guide to future returns.

James Harries, the fund’s manager, favours high-quality companies whose growth is more predictable and robust. In contrast, he steers clear of companies whose destiny is determined by commodity prices or the health of the wider economy. He also avoids businesses that need lots of investment to produce a good or service, and ones with lots of debt.

This strict criteria means he’s largely avoided some of the best performing sectors over the past 12 months, like energy and financials. Equally, the sectors they do favour, such as consumer staples and healthcare, have been among the weaker performers.

Harries has continued to find attractive opportunities in this environment though. Over the long term, we think he’ll deliver strong performance.

Annual percentage growth

Sep 16 - Sep 17 Sep 17 - Sep 18 Sep 18 - Sep 19 Sep 19 - Sep 20 Sep 20 - Sep 21
Jupiter Global Value Equity N/A N/A -3.5% -11.4% 33.3%
IA Global 15.0% 11.8% 5.9% 7.4% 23.9%

Past performance is not a guide to the future. Source: *Lipper IM, to 30/09/2021.

N/A = performance data for this time period is not available

Find out more about Jupiter Global Value Equity including charges

View Jupiter Global Value Equity Key investor information

Annual percentage growth

Sep 16 - Sep 17 Sep 17 - Sep 18 Sep 18 - Sep 19 Sep 19 - Sep 20 Sep 20 - Sep 21
Trojan Global Income N/A 8.8% 16.4% 1.7% 8.8%
IA Global Equity Income 12.7% 6.9% 7.5% -3.5% 22.4%

Past performance is not a guide to the future. Source: *Lipper IM, to 30/09/2021.

N/A = performance data for this time period is not available

Find out more about Trojan Global Income including charges

View Trojan Global Income Key investor information

Find out more about the Wealth Shortlist

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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