The momentum of recent months persisted in August in most parts of the world. Despite the long road ahead in repairing the damage to the economy, optimism remains. As evidence, long-term interest rates were up again during the month. Facing clear messages from central bankers, short-term rates remained low, however. For its part, the U.S. Federal Reserve (Fed) indicated that it would maintain an accommodative policy well beyond a return to its inflation target. In this context, the U.S. dollar continued to struggle, particularly against our currency.
The Canadian stock market recorded a mixed performance this month. Financials and Industrials performed very well, but Health Care and Consumer Staples lost ground. Fortunately, the positive performances were mostly found within important sectors of the index. As measured by the MSCI Canada Index, the domestic market posted a gain of 2.5% over the period. As for bonds, the rise in longer-term interest rates undermined the results. Despite the contribution of the current yield and a slight narrowing of credit spreads, their return was negative for the month of August.
Once again, the U.S. stock market did not disappoint, posting an astonishing performance of 7.5% in local currency, as measured by the MSCI USA Index. However, the significant appreciation of our currency against the greenback tarnished this result as in Canadian dollars, the return was reduced to 4.6%. Most of the sectors contributed to this performance, including Consumer Discretionary, Information Technology and Communication Services. Conversely, Utilities and Energy subtracted value.
The stock markets on the other side of the Atlantic also performed well. As represented by the MSCI Europe Index, August delivered a return of 2.8% in local currencies and 1.3% in Canadian dollars. With the exception of Utilities, Health Care and Consumer Staples, all sectors contributed positively to the return. Among the best performers were Consumer Discretionary, Industrials and Materials.
The region had another excellent month, returning 4.7% in local currencies according to the benchmark MSCI Asia Pacific Index. From a sector perspective, Asia’s leaders were similar to Europe’s: Consumer Discretionary, Industrials and Materials. The loonie’s strength against a number of Asian currencies cancelled out some of the return, however, such that the gain was reduced to 2.3% in Canadian dollars. Information Technology, Utilities and Communication Services are the only sectors that detracted from the overall result.
A slight sign of a stock market slowdown was seen in emerging countries. Despite a respectable gain of 2.2% in local currencies according to the MSCI Emerging Markets Index, the vast majority of the sectors were unable to post a positive return in Canadian dollars. Owing to currency fluctuations, the return in our currency dropped considerably to -0.6%. The Utilities and Information Technology sectors were the weakest performers, while Consumer Discretionary and Materials were the only sectors to end the period in positive territory.