Unclear as to the outcome of trade disputes and multiple political deadlocks, investors turned to safe-haven securities during the month. As a result, gold and bonds saw a strong bid at the expense of various stock markets. The highlight was probably the sharp fall in the yield to maturity of the 30-year U.S. Treasury bond, which reached a new all-time low, going below 2%.
In contrast to stock markets elsewhere in the world, the widespread pessimism did not affect the performance of the Canadian market. It was practically unchanged from the previous month, and the sector performances did not really reflect a shift into a more defensive positioning. While the materials and information technology sectors performed very well, financials and health care offset the gains, resulting in a return of 0.1% for the broad market, as measured by the MSCI Canada Index. A drop in yields across the curve pushed up fixed income prices, giving bond investors a positive return.
It was a different story for the U.S. stock market, which returned -1.7% in local currency, as measured by the MSCI USA Index, and signs of a rotation into the more defensive sectors. Even though most of the sectors suffered from the situation, consumer staples, utilities and real estate performed well and stayed in positive territory. A slight depreciation of the Canadian dollar against the greenback offset some of this underperformance, such that the return was -0.6% when expressed in Canadian dollars.
Europe was also affected by investor concerns. The MSCI Europe Index returned -1.7% in local currencies and -1.4% in Canadian dollars. Slightly more than half of the sectors detracted from the performance, especially financials and energy. Conversely, the more defensive sectors – consumer staples, health care and utilities – contributed positively.
When expressed in local currencies, only the consumer staples sector was positive in Asia during the month of August. The performance of the broad market was -3.1% according to its benchmark, the MSCI Asia Pacific Index. As in the previous month, the sectors that subtracted the most value were financials, industrials and materials. The appreciation of the Asian currency basket against the loonie resulted in a Canadian-dollar return of -1.9% for the region.
Emerging markets also had their share of difficulties during the period. The positive contribution made by a handful of sectors, such as health care and consumer staples, was offset by the Canadian dollar’s strength against the emerging currencies. The return in local currencies, as measured by the MSCI Emerging Markets Index, was -2.5% whereas in Canadian dollars the loss increased to -3.7%. This disappointing result was due mainly to financials, communication services and materials.
Sources: Bank of Canada and MSCI Inc.
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