Ark Review of the Month
The global equity markets experienced volatility over the past month but recovered slightly towards the end. In May, the UK FTSE 100 Index increased by 0.8%, the MSCI Emerging Market Index rose by 0.5%, the US S&P 500 Index edged up 0.2% and the MSCI Europe ex-UK Index fell by 0.6%.
Global investment-grade corporate bond prices rose by 0.6% over the month. The overall global sovereign bond prices were flat. Commodities continued to perform well with prices up 1.5% as oil and wheat prices continued to rise.
Government bonds yield as of 31 May:
UK Gilt 10 Year @2.10%
US Treasury 10 Year @2.85%
German Bund 10 Year @1.12%
Inflation in the UK continues, with the Consumer Price Index (CPI) rising by 9.0% in the 12 months to April 2022, up from 7.0% in March. Inflation is expected to rise to above 10% in the fourth quarter of 2022, well above the Bank of England's 2% target. Economic growth in the UK is weakening, with GDP falling by 0.1% in March compared to February. The high inflation rate, coupled with relatively weak growth forecasts, is starting to point to the possibility of the UK economy entering a "prolonged stagflation".
In response to rising inflation, the Bank of England's Monetary Policy Committee (MPC) raised the base rate by 0.25 percentage points to 1.0% on 5 May. This is the fourth consecutive interest rate increase by the MPC. The base rate is now at its highest level since March 2009.
Benefiting from its large weighting to the energy sector, the FTSE 100 Index has risen by 1.4% year-to-date, substantially outperforming other developed market indices. In contrast, the prices of UK Gilts have fallen by 13.1% year-to-date as high inflation has further eroded bond returns.
From the macro perspective, the market is still exposed to risks including global monetary policy tightening and the Ukraine war and lacks a clear catalyst to change sentiment. The good news is that data coming out of a number of key sectors shows that we appear to have moved past the most challenging stage of the global supply chain crisis. Spot rates of shipping containers are down 26% from the all-time high in September 2021. Fertiliser prices in North America are now 24% lower than the all-time high in March this year, which is good news for food pricing.
When we look at the domestic market, the UK government reported in May that the UK house price index increased by 9.8% in the year to March 2022. Breaking down to countries and regions, the most significant increase in house prices was in East Midlands, with a 12.4% increase. Wales and the South East both saw a house price growth of 11.7% and the East of England saw a house price growth of 10.9%. The region with the lowest growth was London at 4.8%. In terms of monthly data, house prices increased by just 0.6% in March compared to the previous month. Another important indicator, the number of mortgage approvals, decreased from 69,531 in March to 65,974 in April 2022. The soaring trend in house prices over the past two years has been slowed by factors including the increasing cost of living and rising interest rates. However, the current housing demand in the UK still far exceeds the supply.
As always, our Investor Relations team would be more than happy to help you with any queries.
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 guaranteed 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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