1Q 2021 Market and Economic Overview

The first quarter of 2021 report examined whether rising asset prices indicated a bubble. Equity markets rose over the quarter. The MSCI World Equity Index gained 4.18%, euro area equities 10.32%, German equities 9.07%, Japanese equities 6.32%, US equities 5.77%, UK equities 3.92% and Swiss equities 3.21%. Chinese equities fell 3.13% and Brazilian equities fell 2.00%.

The report noted that the announcement of vaccines had acted as a catalyst for expectations of reflation and that industrial commodity prices had recovered as producers restocked. It described the policy shift towards greater fiscal stimulus and closer coordination of fiscal and monetary policy, and the Federal Reserve's flexible form of average inflation targeting. In currencies, the US dollar rose 6.56% against the Swiss franc over the quarter to 0.94 and 7.26% against the yen to 110.70, while the euro fell 3.98% against the dollar to 1.17. Gold fell 9.99% to USD 1,707.01, while WTI crude rose 23.37% to USD 59.55. US inflation was 1.70% in March.

On the question of a bubble, the report reviewed three considerations. First, it looked at extreme price moves in individual assets, citing bitcoin, whose price rose roughly 125-fold from early 2015 to late 2017 before falling by more than 80% in the following year. Second, it discussed the level of risk-free rates and the valuation of US equities relative to bond yields. Third, it examined leverage, including the ratio of margin debt to the size of the US stock market, which had increased but remained below the levels seen before the dot-com collapse and the global financial crisis. It described the leverage of the largest US financial institutions as healthier than before either episode and noted that the US private sector was in aggregate a net lender.

The report also discussed the sensitivity of equity valuations to interest rates.

Important information: This snapshot summarises MWC Group's market commentary for the period shown and is provided for general information only. It is not investment, tax or legal advice, a personal recommendation, or an offer or solicitation to buy or sell any investment, and it does not take account of your personal circumstances. Views and figures reflect conditions at the date of publication and may since have changed. Past performance is not a reliable indicator of future results. The value of investments and any income from them can fall as well as rise, and you may get back less than you invested. Exchange-rate movements can affect returns. Market data comes from third-party sources believed to be reliable, but its accuracy cannot be guaranteed. Please seek personal advice before making any investment decision. Issued by Manentia Wealth Consulting Group Limited (C80087), licensed by the Malta Financial Services Authority.