Global shares fell in May. However, there was a marked difference between sectors, as enthusiasm over AI (Artificial Intelligence) boosted technology stocks, particularly chipmakers. Energy and basic materials sectors were among the most significant fallers amid broad-based weakness in commodity prices.

The US labour market remained strong but is showing some signs of weakening with the unemployment rate increasing from from 3,4% in April to 3,7% in May, despite adding 339000 new jobs (non-farm payrolls) over the month. Inflation rose 0,4% month-on-month in April, resulting in a minor year-on-year decrease from 5,0% to 4,9%. Excluding the volatile food and energy categories, core CPI saw a 0,4% month-on-month increase to nudge down to 5,5% on annual basis. As expected, the Federal Reserve lifted the interest by another 0,25% to 5,25% and consequently inflation and the interest rate are now neck-on-neck with each other. As a result there is an increasingly strong expectation that the FED may leave the interest rate unchanged at their next meeting on June 14. The main American news however related to worries over the US debt ceiling although, as per usual, a deal was reached in the nick of time and passed through congress in the early days of June. The uncertainties around the debt ceiling nonetheless held its grip on the markets. The Dow Jones fell by 3,48%, the S&P500 gained a modest 0,25% and Nasdaq Composite gained 5,80%, as technology stocks gained over the month on AI enthusiasm. The dollar gained 3,01% against the Euro to close at 1,0688 USD/EUR.

Eurozone indices all closed in negative territory in May with the DAX, Eurostoxx and CAC40 indices dropping 1,62%, 3,24% and 5,24% respectively. The Slovene SBITop index dropped a modest 0,38% to close May at 1224,70.

Contrary to a previous report, revised figures showed that the German economy did not in fact escape recession over the winter. After GDP for Q4 2022 fell -0,5% quarter-on-quarter, there was another decline of -0.3% in Q1 2023. The largest economy in the Eurozone is therefore technically in recession while the Eurozone GDP growth is struggling to deliver positive quarterly numbers, posting 0,1% GDP growth in Q1 2023 after zero growth in Q4 2022.

On a more positive note, Eurozone annual inflation dropped from 7,0% in April to 6,10% in May, while core inflation dropped from 5,6% to 5,3%, almost on the same level as the US core inflation rate. The European Central Bank (ECB) raised its key interest rate by another 0,25% to 3,75% but as a result of the rapidly decreasing inflation, investors are beginning to anticipate the end of the ECB's interest rate increases.

Also UK equities fell in May, lead by UK-listed energy and basic materials companies. The Bank of England (BoE) announced a 12th consecutive rise in the base rate, hiking 25 basis points to 4,5%. The bank also upwardly revised its growth and inflation forecasts. The UK economy grew by a modest 0,1% in Q1 2023. UK inflation slowed less than expected to 8,7% in April, from 10,1% in March.

Hong Kong was the weakest index market in May with the Hang Seng Index losing 8,35% as the investor optimism seen earlier in the year following the reopening of China's economy after the Covid-19 crisis faded due to disappointing economic data and weakening demand. Also ongoing tensions with the US and other Western nations over Taiwan continued to weaken investor sentiment towards chinese and Hong Kong markets.

The main exception in May was Japan. Q1 GDP growth figures were positive with solid domestic demand being driven by Covid-reopening and inbound tourism. An improvement in investor sentiment towards the semiconductor industry also supported the market. The Nikkei 225, consisting of large cap stocks, climbed above the 31,000 yen level for the first time since 1990. On the downside, the Yen continued to devaluate against the dollar, closing at nearly 140JPY/USD.

Rudy Marchant
Fund manager Primorski skladi

Monthly reports 2023