Overview

Equities: Global equities posted their first positive month in 2016, continuing their upward trend since mid-February. With continued support from low oil prices and accommodative monetary policy, all major indices recorded gains with the US and emerging market equities experiencing the best results. European equities lagged but still posted positive returns.

Fixed Income: While equity markets rallied, credit spreads tightened during the month. Lower grade credit such as high yield debt also performed well, while investment grade corporate bonds and global sovereign bonds also delivered positive returns.

Currency: Dovish Federal Reserve comments resulted in the US dollar weakening against most major currencies during the month. Despite a surprise interest rate cut by the Reserve Bank of New Zealand, the New Zealand dollar appreciated strongly.

The month in review:

  • March proved to be the first calendar month in 2016 where global equity markets posted positive returns, continuing their upward trend since mid-February. The upside momentum resulted from a number of factors, such as the rise in oil price as well as continued support in monetary policy. All major equity indices recorded gains, with US and emerging market equities experiencing the best results. Although European equities lagged, they still delivered positive returns.
  • Investor’s risk appetite increased over the month, buoyed by the European Central Bank’s (ECB) announcement of a much stronger set of stimulus measures than the market expected. Also adding to this sentiment was the Federal Reserve’s (Fed) pronouncement not to raise interest rates in the US. In the last week of March, Fed Chair, Janet Yellen, indicated that they will “proceed cautiously” given the prevailing backdrop of low inflation and slow global economic growth, with markets infer­ring little prospect of policy tightening in the first half of the year.
  • Risk assets performed well with equity markets rallying and credit spreads tightening. Bond yields fell, and the US dollar weakened against other major currencies. Lower grade credit such as high yield debt also performed well while investment grade corporate bonds and global sovereign bonds delivered positive returns. Elsewhere, oil and the broader commodity universe continued to rebound off of a low base, in part helped by a weak US dollar and last month’s tentative agree­ment by OPEC to freeze production, allowing prices to find a bottom.

Outlook:

  • Broadly speaking, we remain neutral in risk assets and reduced exposure to equities over the month perceiving better opportu­nities to play cyclicality going forward through other asset classes, such as credit where we see scope for attractive risk-adjusted returns. Within equities we retain our preference for markets outside of the US on account of valuation support and divergent monetary policy.
  • We continue to closely monitor financial markets and econom­ic developments and will make adjustments as we see oppor­tunities arising. Among the events we are paying close atten­tion to are Chinese re-adjustment efforts, the eurozone recovery and the degree to which the US recovery is self-sus­taining. Political risk is also at the forefront of our minds, with significant decisions to be made in the coming months by the US, British and German electorates. All these events bring a source of uncertainty which, given the already fragile econom­ic conditions,
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