In February, global markets were mixed.
US equities fell due to volatility around concerns on how much companies are spending on artificial intelligence (AI), while Europe and the UK rose on signs of economic improvement and a move away from AI-focused stocks.
Emerging Markets (EM) outperformed, led by Korea and Taiwan, and Japan gained on strong AI-related demand.
Government bonds performed well as yields fell, corporate bonds fell behind, and precious metals ended higher after early volatility.
US
The US equity market declined over the month. The AI theme was a source of volatility as investors worried whether the biggest tech firms will earn enough back from their heavy spending on AI.
At the same time, the risk of disruption from AI weighed on various sectors, such as software.
Eurozone
Eurozone equities increased, benefitting from signs of an economic pick-up in the region. Energy, communication services and real estate sectors led performance, while healthcare and financials underperformed.
UK
UK equities also performed well in February, supported by a move away from AI stocks. Top gaining sectors included healthcare, basic materials, utilities and telecommunications.
The Bank of England held rates at 3.75% but indicated a possible cut in March, against a backdrop of weaker growth forecasts, slightly rising unemployment expectations and easing inflation, which slowed to 3% in January.
Emerging Markets
EM equities ended February markedly ahead of the MSCI World Index lead by positive performance from Korea and Tawain. Korea was the EM index’s top-performing market in the month as it benefited from the combination of a rally in memory-related stocks (companies that make computer memory chips used in AI and data centres) and a positive outlook for governance reform.
While several other markets delivered strong returns, including South Africa and Thailand, others such as China and Saudi Arabia declined, and Brazil and India rose but fell behind the overall index.
Asia
Asia ex Japan equities rose strongly. Within the region China posted more modest gains.
India and Indonesia fell due to disappointing company results and overseas investors pulling money out. In Indonesia, worries about governance and lower commodity prices also weighed on markets.
Japanese equities rose strongly in February, supported by political stability following the Liberal Democratic Party’s election victory and improving expectations for domestic growth.
While global volatility weighed on some AI-related areas, gains broadened across cyclical sectors – companies that tend to benefit from stronger economic growth – as well as domestically focused businesses, including AI infrastructure, metals, trading companies and real estate.
Global Bonds
It was a good month for government bond markets around the world, as bond yields fell (which means bond prices rose). Markets were mainly influenced by geopolitical events and developments related to AI.
Corporate bonds did not perform as well as government bonds. Investors became slightly more cautious, which led to wider spreads (meaning investors demanded a bit more return for taking credit risk).
Commodities
Precious metals were the top performing component but had a volatile start to the month. Gold and silver both saw their prices slump in the wake of Trump’s nomination of Kevin Warsh to be the next Federal Reserve (Fed) Chair. This allayed some of the market’s worries over inflation, which had been fuelling demand for precious metals. However, prices subsequently rebounded.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
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