May 2015

• Global markets were mixed in May 2015 as improving economic conditions in developed markets were offset by rising bond yields, uncertainty over Greece and a moderation in Chinese equity momentum.
• European equities continued to benefit from quantitative easing, although volatility increased as sovereign bond markets experienced a sharp repricing.
• U.S. markets posted modest gains as economic data improved after a weak first quarter and investors focused on the likely timing of the Federal Reserve's first rate increase.
• Japan advanced on the back of strong corporate earnings and continued monetary support, while China remained highly volatile despite further policy easing.
• Emerging markets delivered mixed returns as a stronger U.S. dollar and ongoing commodity weakness created selective pressures.
• Commodity prices were broadly stable, with oil consolidating earlier gains and industrial metals remaining under pressure.

Asia (ex. Japan)

Asian markets outside Japan produced mixed results in May as Chinese equities experienced heightened volatility after a prolonged surge. Policymakers continued to ease monetary conditions, including additional interest rate cuts, to support economic growth and stabilise the property sector. Although sentiment remained broadly positive, concerns grew that valuations in domestic Chinese equities were becoming increasingly stretched.

India maintained a constructive tone as inflation stayed subdued and expectations for further reform remained supportive. Elsewhere in the region, South Korea, Taiwan and several Southeast Asian markets were influenced by changing U.S. interest rate expectations and fluctuations in export demand. Lower oil prices continued to provide a meaningful benefit to energy-importing economies.

Europe

European equities delivered modest gains in May, supported by the European Central Bank's ongoing asset purchase programme and signs of gradual economic improvement. Business confidence strengthened and credit conditions continued to recover, while the weaker euro supported export-oriented sectors.

Bond markets were notably volatile, with German Bund yields rising sharply from record lows as investors reassessed inflation expectations and positioning. Negotiations between Greece and its creditors remained unresolved, generating periodic market uncertainty, although expectations of continued ECB support helped contain broader contagion.

United States

U.S. equities advanced modestly during May as economic data improved following a weak first quarter. Employment growth remained robust, consumer spending was supported by rising wages and low energy prices, and housing activity showed further signs of recovery.

The Federal Reserve continued to indicate that interest rates could rise later in the year if economic conditions evolved as expected. Treasury yields moved higher as investors anticipated policy normalisation, while corporate earnings remained generally resilient despite the effects of the stronger dollar on multinational companies.

United Kingdom

UK equities performed positively in May following the decisive general election victory of the Conservative Party, which removed a significant source of political uncertainty. Domestic economic conditions remained supportive, with solid employment growth and improving consumer confidence.

Inflation remained close to zero, allowing the Bank of England to maintain its accommodative stance. Sterling strengthened after the election result, while gilt yields rose alongside global bond markets. Consumer-oriented sectors continued to benefit from stronger household purchasing power and stable borrowing conditions.

Japan

Japanese equities extended their gains in May as strong corporate earnings, a weaker yen and continued monetary stimulus underpinned investor confidence. Shareholder-friendly initiatives, including higher dividends and share buybacks, further supported market sentiment.

Economic data suggested that the recovery was gradually broadening, although inflation remained subdued. The Bank of Japan maintained its aggressive policy stance, and domestic pension funds continued to increase allocations to equities as part of ongoing portfolio reforms.

Emerging Markets

Emerging market performance was mixed during May as rising U.S. Treasury yields and a firmer dollar prompted selective capital outflows. Countries with strong reform agendas and stable external balances generally performed better, while commodity-dependent economies remained under pressure.

India continued to attract investor interest, while Brazil and Russia faced economic and political challenges. China remained a key driver of sentiment, with both policy easing and concerns over equity market valuations influencing broader regional performance.

Commodities

Commodity prices were relatively stable in May. Crude oil consolidated the rebound seen in previous months as lower U.S. drilling activity and expectations of stronger demand helped offset still-elevated global inventories.

Gold prices were little changed as investors balanced rising U.S. interest rate expectations against ongoing geopolitical and economic uncertainty. Industrial metals remained subdued amid concerns over Chinese demand, while agricultural commodities were mixed depending on weather conditions and crop forecasts.