As in January, financial markets were positive in February. Growth figures were encouraging and again there was evidence that inflation is easing. With the U.S. CPI figures, however, the expectation was that inflation would be lower than it really was. As a result, interest rates rose slightly, and so we recorded lower prices for most bonds. Equities benefited from the sentiment and posted positive returns across the board. Apart from oil and gold, commodities became cheaper in February.
Shares
Strong corporate earnings combined with market sentiment drove some equity markets to their highest prices since inception. Last month, the MSCI All Countries World Index (developed + emerging markets combined; measured in euro) posted a return of +4.7%. Emerging markets more than made up for last month’s loss with a positive return of 5.2%. Developed markets (+4.6%) were not far behind. Within developed markets, North America (+5.5%) was the best performing region, followed at some distance by Japan (+3.4%), Europe (+1.9%) and Pacific excluding Japan (+0.9%). Unlike last month, it was China (+8.8%) that pulled ahead of emerging markets (+5.2%). The Asia region (+6.3%) also showed a nice plus. EMEA (+2.2%) lagged behind this and Latin America only just made a positive return (+0.2%). Style growth stocks (+6.3%) again outperformed style value stocks (+3.0%).
Bonds
So February saw another rise in interest rates. This time it was the U.S. that showed a larger rise than Europe, virtually leveling off on an annual basis. The 10-year rate on German government bonds rose 0.24% in February to a level of 2.41%, a smaller increase than for Dutch government bonds with the same maturity (+0.29%, to 2.73%). In the U.S., interest rates rose above 4% again: 0.34% higher for the month (to 4.25%). That the market became more risk-seeking was reflected in risk premiums; these declined in February, with some difference, however, between categories. For emerging market government bonds, the premium fell 0.33% to 3.69%. For less risky corporate bonds, we saw a decline of 0.09% (to 1.21%). The steepest decline was seen in more risky corporate bonds: -/-0.41% (to 3.49%).