Axiome March update 2017

In our market commentary for the beginning of 2017 we highlighted that a ‘great rotation’ from global bonds to global equities was underway given the market’s conviction that the business cycle was back in the United States, with other countries following.  Economic conditions are now strong enough in most developed economies to return inflation back to higher levels, necessitating central banks to gradually increase interest rates.  This quarter has only reinforced our assessment that interest rate normalisation will continue.

Equity markets continued their rally whilst bonds and defensive assets in general fared poorly given the rising interest rate outlook.  The wall of political noise emanating from the United States may be entertaining or deeply concerning depending on your views, but it has barely budged markets. The broad MSCI index of global developed market companies increased around 8% over the quarter and around 23% over the past year (in USD terms).  The broad MSCI index of emerging market companies performed even better, increasing around 9.5% for the quarter and over 30% for the year.