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MARKET BULLETIN 21 March 2014

This Market Bulletin has been produced in association with Threadneedle Investments. Its intended to provide you with a look back at the events that have affected the performance of global equity markets in the last fortnight. This is a general market update and should not be considered a comprehensive or sufficient basis

CURRENT VALUE

10 DaY % CHanGe

FTSE 100 Dow Jones Nikkei 225

6,557 16,368 14,224

-2.34% -0.49% -6.09%

Weekly Statistics (source: FT) Key per formance indicators (as at Friday 21 March 16:34 GMT)

Day-by-day analysis of FTSE 100 Index

Global equity markets staged a strong recovery in February. In the UK, the FTSE All-Share posted a sterling total return of 5.2%. Key contributing factors included comments from the new Chair of the Federal Reserve Janet Yellen that the recent disappointing economic data from the US might reflect the impact of recent exceptionally cold weather. In the UK, equity markets took encouragement from further signs of economic recovery alongside benign inflation data, with CPI moving below the 2% target for the first time since 2009. Emerging markets underperformed developed markets again, although a number including China ended February in positive territory, as some market participants began to highlight the relatively attractive valuations. In fixed income markets, the yield on 10-year US treasuries ended February barely changed at 2.7%. In the UK, gilt yields were unchanged across the curve. The key event of the month for gilt markets was the Bank of Englands inflation report where Governor Mark Carney announced the effective end to forward guidance, replacing it with a much broader set of policy indicators aimed at prolonging the recovery and ensuring that spare capacity in the economy is largely utilised ahead of any change in monetary policy. Carney went out of his way to say that when interest rates do start rising, the pace of the increase will be very gradual and the ultimate peak will be well below historical levels. In credit markets, the broad sterling credit indices made further headway, with the iBoxx sterling non-gilts index producing a total return of 0.36%. While February was a positive month for equities, March to date has been more challenging as investors focus has switched to the political crisis in Ukraine, an event which could determine risk appetite for the remainder of this year. To date, the fallout from the Ukrainian crisis has been largely confined to the emerging market debt, emerging market equity and commodity markets. At current levels, emerging market local currency debt appears to offer value, and we remain overweight EM local debt in our asset allocation model, although we expect both the hard and local currency markets to remain volatile in the short term. Emerging equities reflect concerns not only on Russia and Ukraine but also the weaker growth outlook in Brazil and China. In commodities, Russia is a significant player in energy, supplying some 30% of Europes gas, with 50% of that piped through Ukraine. Any move to curb Russian oil exports by the EU could easily drive Brent crude oil into the $140-160 a barrel range and as a result we are monitoring events very closely.

Elsewhere, investment grade and high yield markets have been largely unmoved by the crisis in Ukraine. Foreign exchange markets, outside of the obvious areas such as the rouble, have also ignored it. Developed market equity and bond markets have recently been driven by other factors such as the headwinds from a stronger pound for UK equities and the subsequent FX-related earnings downgrades, the severe weather in the US, and some weaker-than-expected European corporate results, despite ongoing signs of macroeconomic recovery. Core government bond investors have been focused on the softer US macroeconomic data, which has provided support for the asset class despite ongoing QE tapering. In terms of our positioning, we continue to favour equities (specifically the UK and Japan) within our asset allocation model, but recognise that it is important that companies deliver some earnings growth this year given the valuation rerating of equities that has been seen in recent years, and the gradually diminishing liquidity support for equities as US QE begins to fade. Companies that have failed to deliver on earnings in recent weeks have been punished as valuations leave little or no room for disappointment. In bond markets, we continue to prefer corporate credit over core government debt although total returns for both high yield and investment grade are likely to be modest this year. We continue to like UK commercial property for its attractive real yield and because of the growing investor interest in the asset class on the back of the ongoing domestic macroeconomic recovery.

Moneysprite is an appointed representative of Openwork Limited, which is authorised and regulated by the Financial Conduct Authority. The content of this bulletin, including the figures, is amalgamated from various sources and represent a snapshot of the market. Stock market and currency movements mean the value of your investment can go down as well as up and you may not get back the orginal amount invested. Past performance is not a guide to future performance.

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