The second quarter was mainly shaped by uncertainty in regards to the future of Greece within the Eurozone, which led to a divergence in the performance of equities in different regions. As we are sending out this newsletter, more than a week has passed since the Greek referendum. And Greece’s ultimate fate is still unclear. Under these unique circumstances, it is understandable that European equities suffered in the previous quarter, with all major European indices ending the quarter in red territory. The German DAX lost 8.5%, the French CAC 40 lost 2.6%, and the Euro Stoxx 50 Index ended the quarter 5.3% lower. However, during the same period the Euro gained around 3.9% against the US dollar, reducing the loss (or even producing a gain) for investors thinking in US Dollar terms.
In the US, the major indices such as the Dow Jones and the S&P 500 ended the quarter essentially flat, with the NASDAQ posting a modest gain of 2.1%. Most markets in Asia clearly ended the quarter in the green with the Nikkei closing 5.4% higher and the Hang Seng Index in Hong Kong having gained 7.2%. On the other hand, the stocks listed in Mainland China witnessed a sharp correction in June. The Shanghai A-Shares Index lost 17.0% percent of its market capitalization in the last two weeks of June. It’s important to note however that prior to the correction, the stock market had rallied more than 150% in less than a year. In China, capital controls are in place limiting foreign investments outside the country. Due to the fact that real estate in China is in bubble territory, a lot of capital went into the local stock market.
In the commodities markets, we witnessed a recovery in the oil price after the sharp correction we had seen; oil was up around 25% Quarter over Quarter. We do not expect the oil price to recover to the highs of last year (> 100 USD per barrel) for the foreseeable future, demand is likely to stay stable and producers are likely to increase their output. Iran, which is currently cut off from the regular market, announced that they would double their oil output if the sanctions against them were lifted, which would apply additional downward pressure on the oil price. Gold ended the quarter basically flat with -1.0%, a disappointing performance especially when taking the Greek situation into consideration.
The 2nd quarter of 2015 saw a considerable rise in interest rates, especially in the Eurozone. We will have a more detailed look at interest rates and their impact on your portfolio in this BFI InSights. In addition to our article on the economy, we will shed some light on a potential Brexit in our last article.