In midsummer, the markets also seem to feel the need to slow their pace and take a break. And for a good reason since their performance has been very positive from the start of the year, but uncertainty persists about the global economic outlook, as well as the level of support that the central banks will provide. In July, this situation resulted in relatively contained upward and downward price variations.
Most sectors were slightly up in July, including Financials, Industrials and Information Technology. Even so, the performance by two sectors, Energy and Health Care, offset these advances, with the result that the broad market returned 0%, as measured by the MSCI Canada Index. An increase of a few basis points in the yields of bonds maturing in more than one year adversely affected the return on the bond market but did not prevent it from ending the month in positive territory.
The U.S. market once again outperformed all the others: in July, the MSCI USA Index recorded a gain of 1.5% in local currency. Because our currency was down slightly against the U.S. dollar, this performance resulted in a gain of 2.0% in Canadian dollars. As with the Canadian market, many sectors had a positive return but Energy and Health Care subtracted value during the period.
The most important factor affecting the performance of the European market during the month was the weakness of the region’s major currencies against the loonie. The MSCI Europe Index recorded a gain of 0.7% in local currencies, but the return was -1.4% when expressed in Canadian dollars. Europe’s vulnerability to a scenario of slowing global growth and the political uncertainty linked to Brexit certainly did not help the region’s performance. The Consumer Staples sector contributed the most to the performance, while Financials, Materials and Energy detracted the most.
From a sector standpoint, the situation was more balanced in Asia, where half of the sectors contributed positively and the other half contributed negatively. Information Technology, Communication Services and Health Care are the sectors with the highest increases. At the other extreme, Financials, Industrials and Materials were the sectors that deducted the most value. As measured by the benchmark MSCI Asia Pacific Index, this market posted a return of -0.1% in local currencies for July. Our currency was slightly up against the basket of Asian currencies, so the return in Canadian dollars was -0.3% for the region.
Emerging markets had the weakest performance during the period. Their return in local currencies, as measured by the MSCI Emerging Markets Index, was -0.9%. Even so, the loonie’s fluctuation against the emerging currencies cancelled out some of this loss, such that the return was -0.7% in Canadian dollars. Most of the sectors were on the decline, including Financials, Materials, Industrials and Energy.
Sources: Bank of Canada and MSCI Inc.
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