Global stock markets gained in February with emerging markets performing strongly as Chinese shares experienced a rebound. By contrast, in fixed income yields were generally higher, meaning prices fell, as investors pushed further the expected timeframe for central banks to cut interest rates on sticky inflation and a resilient labor market.

US nonfarm payrolls showed 353000 jobs were added in January, well above market expectations of 187000. The US unemployment rate also remained firmly at 3,7%, remaining below 4% for two years. Annual inflation slowed to 3,1% in January from 3,4% in December. However, the core CPI component (which strips out food and energy prices) was up 3,9% year-on-year, unchanged from December’s reading and still a long way from the Federal Reserve's 2,0% target. The Federal Reserve kept the interest rate at 5,5% fort he fourth time and Fed chair Jerome Powell indicated that a March rate cut was unlikely.

Despite the delayed rate cut expectation, US markets closed February in green with the Dow Jones, S&P500 and Nasdaq gaining 2,22%, 5,10% and 6,12% respectively. The dollar remained quasi unchanged against the Euro, closing at 1,0803.

Eurozone stocks also advanced, though to a lesser extent, despite European Central Bank President Christine Lagarde continuing to downplay the chances of an imminent interest rate cut. Eurozone inflation eased to 2,6% from 2,8% in January. There were also some signs of improving business activity with the Eurozone purchasing managers’ index (PMI) rising to 48,9 from 47,9 in January (PMI data is based on surveys of companies in the manufacturing and service sectors. A reading above 50 indicates growth while below 50 indicates contraction). The Eurostoxx 50, DAX and CAC40 gaining 4,93%, 4,58% and 3,54% respectively. Slovenia's SBI index once again outperformed other European indices, adding 6,43% to close January at 1408,41.

United Kingdom's FTSE index continues to underperform, remaining virtually unchanged throughout the month. Data showed that the UK economy had entered a technical recession in the second half of 2023 as consumer spending is being supressed by higher inflation. UK inflation remained at 4% year over year while core inflation remained at 5,1%. The Pound Sterling modestly lost against the Euro, closing at 0,8555 GBP/EUR.

The rally of the Japanese equity market continued in February with the Nikkei 225 finally topping its all-time high of 38,915, reached in December 1989. the Nikkei added 7,94% in February to close at 39166,19. The Japanese Yen however continues to devaluate, losing 1,98% against the Euro. Investors feel more at ease as the Bank of Japan (BOJ) intends to lift the interest rate into positive territory, which is expected in March or April.

Hong Kong shares finally caught a little break, posting their first solid gains since July last year. The Hang Seng index added 6,62%. It would appear Chinese stocks have been battered for so long that investors are beginning to return to Chinese stocks due to the cheap valuations. That said, consumer demand remains weak, the real estate crisis is still in full swing and the outlook remains uncertain.

Rudy Marchant
Fund manager Primorski skladi

Monthly reports - February 2024