Investment Commentary – May 2024

2 minute read

Following April’s shallow drawdown, equity markets rose in May extending a rally that has now persisted over seven months. Equity market strength continues to broaden, with gains increasingly seen outside of the “magnificent seven” stocks including notable moves in UK equities and smaller companies. Inflationary trends remain favourable and government bond yields eased slightly, as central banks prepare to make initial interest rate cuts.

The month’s big news, at least for UK investors, was the surprise announcement of a general election, with the date was set for 4th July. Given the dire popularity of the Conservative party in the polls, it is difficult to surmise Rishi Sunak’s rationale for calling an election that could have been delayed until the end of the year. However, much can change during the campaigning period, and perhaps there was a fear that the situation would worsen. For markets, there are unlikely to be any major upsets, as the anticipation of a Labour government has been present for some time. Nevertheless, potential announcements on specific policies may shake some individual sectors (energy, water etc.). Overall, the lack of movement in Sterling against major peers, suggests markets are not overly concerned about the current likely outcome of a majority Labour government.

Democracy was also a theme across other regions in the month, with Indian general elections also taking place. Indian equities reached new highs as polls suggested a continuation of the incumbent BJP government, led by Prime Minister Narendra Modi. Indian GDP figures released towards the month end, showed that the economy remains very strong, growing at 7.8% over the year to the end of March, ahead of the expected 6.7%. Growth was driven by the manufacturing sector, perhaps suggesting a pivot of global supply chains away from China, as many anticipate. The high growth rate of India, strength of the equity market, and its long-term demographic tailwind, illustrates India’s increasing importance for investors. Emerging markets have been out of favour for many years, providing lacklustre returns. However, trends seen in the Indian economy are mirrored elsewhere and the asset class should not be written off.

US events were also political in nature, with Donald Trump’s trial concluding with the characteristic media storm that so often follows the former US President. While not directly market related, the increasingly volatile political situation may begin to make some investors question their US investments, at the margin. The forthcoming presidential election seems to be evolving into a referendum on the conviction (and potential imprisonment) of Donald Trump, and perhaps more broadly, the political and legal systems in the US. Regardless of the outcome of the election, there will now be a large group that will be deeply dissatisfied, more so than any usual political event. While it is very difficult for investors to quantify such issues into their investment decisions, increased political disfunction and a disillusioned populous could be a factor that is more broadly considered.