Stock indexes worldwide posted mixed returns for Canadian investors over the quarter’s opening month, mainly due to the currency effect. The period’s optimistic start on the back of good returns was offset by concerns over persistent geopolitical tensions, including Iran’s nuclear deal and expectations regarding U.S. monetary tightening. Against this backdrop, oil prices and the Canadian dollar rose, having an adverse effect on the Canadian bond market, whose good performance over the previous month was completely negated as interest rates increased by 10 to 30 basis points across the yield curve’s various terms. However, this proved beneficial for the Canadian stock market, with the MSCI Canada Index posting a 1.9% increase over the month. The energy sector was the main contributor to returns thanks to rising oil prices.
The U.S. market remained neutral over the period. The MSCI USA Index showed a slight increase in local currencies (0.4%), which turned into a negligible loss (-0.2%) in Canadian dollar terms. Trade disputes with China and rising interest rates were counterweighted by good corporate returns.
In Europe, in this context of sustained accommodating monetary policy, improving corporate profits and merger and acquisition activity in the telecommunications sector, the MSCI Europe Index outperformed other markets worldwide, posting a 2.4% increase in Canadian dollars (4.8% in local currencies). All sectors in Europe reported positive returns over the month.
Stock market performance was also very positive in Asia, with a 2.5% return in local currencies. With the exception of information technology, all sectors have contributed to market performance. However, as this was counterbalanced by the Canadian dollar’s strength relative to foreign currencies, the MSCI Asia Pacific Index indicated a more modest gain of 0.3% in Canadian dollars. In Japan, trade disputes and improving geopolitics in Korea had a negative impact on the yen, thereby driving stock prices upwards among export companies.
In April, emerging countries suffered from the U.S. dollar’s appreciation and trade concerns, which impeded stock price growth across these regions. The MSCI Emerging Markets Index posted a 1.2% gain in local currencies, but a 1.0% loss when converted into Canadian dollars. This negative performance mainly stemmed from the information technology sector, as well as the Brazilian real’s relative weakness.
Source: Bank of Canada and MSCI Inc.
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