Central banks’ commitment to remain accommodative, the leeway they have as a result of below-target inflation and the context of a controlled slowdown are factors that were favourable to the more cyclical sectors in April, at the expense of the more defensive sectors.
After a pronounced decline last month, the yield curve readjusted slightly upward in April, which was detrimental to bond returns. Despite the positive impact of tighter credit spreads and the contribution of the current yield, the bond market’s performance was nil on the month. With an economic outlook that is still positive despite the slowdown, as well as central-bank support, the Canadian stock market continued to rise, recording an excellent return of 3.8%, as measured by the MSCI Canada Index. The standout sectors were Financials, Energy and Industrials. The only sectors that subtracted value were Materials, Communication Services and Real Estate.
The U.S. stock market continued to advance. According to the MSCI USA Index, it returned 4.0% in local currency. The strength of the greenback against the loonie added to its performance, such that the return in Canadian dollars was 4.7%. In terms of positive contributions, the cyclical sectors led the way, including Information Technology, Financials and Communication Services. Only the Health Care sector had a negative return in April.
The situation in Europe is almost identical to that in the United States. The MSCI Europe Index was up 4.3% in local currencies. Here, too, the cyclical sectors definitely dominated, with the defensive sectors lagging. The largest contributors to the performance were Financials, Industrials and Consumer Discretionary. Conversely, the Health Care and Real Estate sectors subtracted value during the period. The euro and the British pound fluctuated very little against the loonie; as a result, the return in Canadian dollars was almost unchanged at 4.4%.
Although more modest in comparison with the other markets, Asia’s performance was quite respectable nonetheless. According to the benchmark, the MSCI Asia Pacific Index, the region returned 2.3% in local currencies. Our currency’s stability against all the Asian currencies resulted in no foreign-exchange effect and an identical return of 2.3% in Canadian currency. The main sectors that contributed positively were Consumer Discretionary, Information Technology and Financials. At the other end of the spectrum, Real Estate, Utilities and Health Care detracted from the total return.
The disconnection between the cyclical sectors and the more defensive sectors was also seen in emerging markets. Financials, Information Technology and Consumer Discretionary made the most positive contributions whereas Materials and Utilities subtracted value. Foreign currency fluctuations had little impact: according to the MSCI Emerging Markets Index, the performance during the period was 2.6% in local currencies and 2.8% in Canadian dollars.
Source: Bank of Canada and MSCI Inc.
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