1 July 2015, Stockholm, Sweden | News
The financial markets began the year with falling interest rates and rising equities, a pattern we have become accustomed to in recent years. This went into reverse in April, when European long-term government bond yields in particular began to rise sharply from historically low levels.
The interest rate on a 10-year German government bond rose from a record low 0.05 percent to 1 percent. This increase can be interpreted in different ways. In our opinion, it is a result of overly low interest rates to begin with, plus gradually rising inflation and growth expectations. Our assessment is that we have seen the low-point of long-term market rates, but that interest rates will remain low.
Continued expansionary monetary policy
In the first half of the year, many of the world's central banks continued their expansionary monetary policy. The European Central Bank (ECB) began March by purchasing European bonds and intends to continue doing so until the autumn of 2016. We expect these stimulus measures to be reflected in a gradual improvement of economic growth in Europe towards the end of the year.
The ECB's expansionary monetary policy has affected the economies that border the euro area as appreciation pressures on their currencies became too great. Switzerland was forced in dramatic circumstances to release its ceiling on the Swiss franc. Denmark's central bank was forced to lower its key interest rate to -0.75 percent in order to be able to maintain the Danish krone's peg against the euro. The Swedish Riksbank surprised the markets by lowering its key interest rate and by initiating purchases of government bonds to prevent the Swedish krona from meeting the same fate.
In the US, expectations are reversed and we expect that the US central bank will this autumn tighten monetary policy and raise its key interest rate for the first time since 2006.
Stock market performance
A combination of continued expansionary monetary policy from the world's central banks and increasing growth continued to fuel stock markets at the beginning of the year. The Nordic region was no exception, and the Stockholm stock exchange gained a major boost from the actions of the Riksbank. The result was that the krona weakened, which mainly benefited the export sector. The sharp upturn meant that Nordic equities were valued well above the historical average.
Risk appetite in all Nordic stock exchanges remained strong and this was reflected in the number of IPOs and M&A transactions.
Developments have been mixed in emerging markets, which are important for most of our Nordic businesses. China's growth is strong but has continued to surprise on the downside. It is obvious that the country is in a structural slowdown, and the Chinese central bank has responded with interest rate cuts and lower reserve requirements for banks to try to fine-tune the economic cycle. Brazil has gone into outright recession because of structural problems in the aftermath of last year's fall in commodity prices. The Russian economy has performed better than expected. Its growth is falling, but by far less than most commentators feared last year. The most positive development has been in India, where the strong growth figures and the new government's reforms have increased the expectations that India could take over as the engine of growth in the world economy.
The latter part of the period was characterised by profit-taking on the world's stock markets, marked by rising long-term market interest rates and renewed concerns about developments in Greece.
With low profit growth among Swedish listed companies, valuations of many companies became high at the beginning of the year and a correction in stock prices was a natural consequence. We believe that this correction creates opportunities to invest in quality companies with attractive valuations where we expect good profit growth in the coming years.
IMPORTANT INFORMATION
Past performance is no guarantee of future returns. The money invested in a fund can increase and decrease in value and there is no guarantee that you will get back the full amount invested. No consideration is given to inflation.The Catella Credit Opportunity fund is a special fund pursuant to the Swedish Alternative Investment Fund Managers Act (SFS 2013:561) (AIFMA).You can find all the Catella Fonder key investor information and prospectuses at catella.se/fonder.
