The salient feature of the past month was undoubtedly investors’ response to the environment that is emerging for the coming quarters. Faced with an economic recovery that is likely to be gradual and fragile at times, investors may have concluded that the unprecedented support measures would have to be extended. The prospect of lower-for-longer interest rates certainly fuelled the enthusiasm for safe-haven securities, to the detriment of the U.S. dollar.
Owing to higher prices for metals, especially gold, the Canadian market was propelled by the Materials sector, which generated a return twice that of its closest rivals, Consumer Staples and Industrials. Only the Real Estate sector had a negative return during the month. As measured by the MSCI Canada Index, the domestic market posted an impressive 4.3% gain over the period. The downward pressure on interest rates continued and contributed to the performance of all categories of bond issuers.
In the United States, very little seemed to perturb investors. In July, the MSCI USA Index returned 5.9% in local currency. Buoyed by consumer optimism, the Consumer Discretionary sector led the way, followed by Utilities and Materials. However, the greenback has lost its lustre against several foreign currencies, so that when expressed in Canadian dollars, performance was 4.2%. Energy was the only sector that subtracted value during the month.
The situation in Europe was entirely different. While slightly more than half of the sectors retreated, leading the MSCI Europe Index to a return of -1.4% in local currencies, the strength of the euro, the pound sterling and the Swiss franc ensured that the performance was positive in Canadian currency. The sectors that made positive contributions included Utilities, Materials, Real Estate and Information Technology. In contrast, Energy, Communication Services and Financials detracted from the performance. The European market returned 2.2% in Canadian dollars.
Unlike Europe, Asia performed quite similarly to the North American markets. According to the benchmark MSCI Asia Pacific Index, the region returned 3.2% in local currencies. This significant performance was slightly dampened by the appreciation of the Canadian dollar against some of the local currencies. Thus, the return was 2.9% in Canadian dollars. The Information Technology sector largely dominated, while Industrials and Utilities undermined performance.
The rebound in emerging markets continued in July. For the second month in a row, they recorded the largest monthly gain. Their return, as measured by the MSCI Emerging Markets Index, was 8.2% in local currencies. Currency fluctuations had a slightly negative impact on performance, reducing it to 7.2% in Canadian dollars. Although all the sectors contributed to this result, it should be noted that Information Technology and Consumer Discretionary were the main drivers.