Ark Review of the Month
The past month has seen very strong global economic data, with the OECD raising its global growth forecasts to 5.8% and 4.4% for 2021 and 2022 respectively. With the help of substantial fiscal stimulus and rapid vaccine rollout, major economies such as the US, UK and China are all set to see significant economic growth. However, the OECD highlighted the uneven nature of the recovery and its dependence on global vaccine rollout, living standards in some regions may take longer to return to pre-pandemic levels.
Value stocks took the lead again in May, with the MSCI Global Value Index rising 3.0%. Stock price in developed markets increased 1.5% overall. As for regional distribution, MSCI Europe ex UK Index increased 2.8%, MSCI Emerging Markets Index increased 2.3%, followed by FTSE All-Share Index and S&P 500 Index, up 1.1% and 0.7% respectively.
Government bonds yield as of 31 May:
UK Gilt 10 Year @0.80%
US Treasury 10 Year @1.74%
German Bund 10 Year @-0.18%
Recent data released by the UK Office for National Statistics showed that the Gross Domestic Product had retraced by 1.5% from January to March 2021. Under normal circumstances, this would be a worrying figure, but given that most parts of the country were under lockdown during this period, this figure is indeed far better than expected. Retail sales in April increased 9.2% month on month. Clothing sales surged by a staggering 70%.
The strong demand has brought optimism to the market. FTSE All-Share rose by 1.1% in May, taking its year-to-date gain to over 10%. UK gilts price also increased by 0.5% over the month.
As business activity resumes and the economy recovers, we see signs of global inflation. UK CPI doubled in April, rising to 1.5% from 0.7% in March. This means that consumer prices are now at their highest level since the start of the pandemic in March 2020. The main contributors to the rise in CPI were household services such as gas and electricity, and clothing sales and transport. Petrol price is also at its peak since 2020 due to high oil price.
The Bank of England said that the inflation in the UK is exceeding its 2% target and is expected to reach 2.5% by the end of this year. Value of cash will be further eroded. Rising inflation could lead to a negative return on savings. For investors who have cautious or balanced investment preferences, now is the time to restructure the portfolio, as the equity market will have a relatively positive outlook.
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The views expressed in this update are not intended as an offer or solicitation for the purchase or sale of any investment or financial instrument. The views reflect the views of Ark Investment Management at the date of this document and, whilst the opinions stated are honestly held, they are not guarantees and should not be relied upon and may be subject to change without notice. Investments entail risks. Past performance is not necessarily a guide to future performance. There is no guarantee that you will recover the amount of your original investment. The information contained in this update does not constitute investment advice and should not be used as the basis of any investment decision. Any references to specific securities or indices are included for the purposes of illustration only and should not be construed as a recommendation to either buy or sell these securities, or invest in a particular sector. If you are in any doubt, please speak to us or your financial adviser as appropriate.
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