TRANSCRIPT

Hello and welcome to a new podcast from BNP Paribas Wealth Management. I'm Edmund Shing, Chief Investment Officer.  In this podcast, I want to talk about why investors should keep an eye on the long term, particularly during periods of difficulty and volatility such as we have today.

A good example of the volatility we see today is April's performance, where we have seen the Trump tariff tantrum have its effect on global financial markets. Not only is geopolitical uncertainty at a record high, but financial markets are gripped by very high levels of volatility in stock markets, bond markets and currency markets.  As a result, we see that the US dollar on a broad basis has fallen 4% over the month of April against a basket of currencies. US stocks are down 7% on average, world stocks, which again are largely comprised of the US, are down 5% in dollar terms just over the month of April. 

This is only when we look at the very short term.  If we look over the last 12 months, so we take a slightly longer view, we should remember that despite the market correction we see, particularly focused in the US, US large-cap stocks are up 7.5%, including dividends over the last 12 months. Europe is up 8%, if we look at the eurozone, of which you have the German Dax at +21%, and the Spanish Ibex at +25% return over the last 12 months. The UK +8%, China, if represented by the Hang Seng China Enterprise Index, HSCEI +39% over the last 12 months, clearly stellar performance, world +8% in dollar terms. 

Even if we look away from stock markets, you still see positive performance for instance from government bonds in dollar terms: +7% or corporate credit +8% over the last 12 months, and of course gold, another stellar performer, in dollar terms +39% over the last 12 months. 

So at the end of the day, markets have been kind to investors over the long term. I’ve mentioned these numbers over the last 12 months. If I were to take performance over the last 5 years since 2020, the numbers would look even more impressive. A good reminder to investors that when they invest, particularly in assets such as stocks, that they are investing for the long term and should not be overly biased by volatility or drawdowns in the very short term, just as we've seen this month. 

It is true that as Paul Tudor Jones, the famed hedge fund trader, said, nothing good happens under the 200-day moving average, and it is true that for the moment, US stocks as represented by the S&P 500 do remain under this 200-day moving average. So still question marks as to the longer-term trajectory of US stocks from here. 

However, we should bear in mind that a number of other stock market indices around the world, such as in Europe, particularly with the DAX, in China, as I said the HSCEI, or even in India, with the Sensex, all of these markets are well above their current 200-day moving averages, so remain in a solid uptrend as do certain of our favourite sectors at the equity level, such as European banks, which is very much in a solid uptrend above its own 200-day moving average. Same for gold, very strong performance long term, very strong performance even short term. Yes, it is probably due to pause or even correct after a surge over the year to date. It is +25% year to date alone. So I would not be surprised to see gold settle back a bit, but I do not think this is by any means the end of the story. The longer-term trend still remains very positive. 

So what could the trigger be for a further rebound in particularly stock markets over the short term? Well, I think further U-turns particularly on trades by Trump, maybe citing bilateral trade deals with a number of countries which could include Japan, South Korea, India in the first wave. Secondly, Ukraine remains a wild card and can still deliver a surprising positive for risk assets, including stocks worldwide.  I think thirdly, we should note that if we look at some of our favourite financial market indicators of risk, notably the US high yield credit spread that this high yield credit spread has continued to fall. It had peaked at 4.5% earlier this month, but has now receded to 3.7% and looks like it will continue to fall. This in itself is a good sign, and suggests that some of the market volatility is calming, as we've seen Donald Trump walk back some of his most aggressive stances on trade. And I think further walking back of his stance on trade and indeed on the Federal Reserve could prove to be a further positive for stock markets and commodity markets in the weeks ahead.

Thank you very much for listening to this podcast from BNP Paribas Wealth Management. Please do like, share and subscribe to our series of podcasts. And until the next time, goodbye.