• Equity indexes declined in May
  • China started to prop up its economy

In May 2022, equity markets witnessed large fluctuations. At the start of the month, investors’ willingness to sell intensified and the US S&P 500 index declined by nearly 19% from its peak reached at the start of the year. However, towards the end of the month, indexes started to rebound. World equity index declined by 1.45% over May, while the emerging market index contracted by 1.1%.

Major equity indexes YTD


Source: Bloomberg L.P.

Investors had to evaluate several important messages coming from major central banks. In its semi‑annual report, the US Federal reserve bank (FED) warned that the risk of sudden liquidity deterioration is “higher than normal” and “notable dysfunction” is seen in commodity markets amid the war in Ukraine. FED chairman Jerome Powell, in his most hawkish remarks to date, said the bank will keep raising interest rates until there is a “clear and convincing” evidence that inflation is in retreat. Market participants are still expecting that interest rates will be raised to 2% during the next two FED meetings. 

Nonetheless, in the second part of May, some investors started to increase risk exposure, expecting that inflation will peak soon and FED will no longer be pressured to raise rates. While it is not clear if this assumption is going to materialize and the rebound will continue, one thing is clear, that June and July inflation readings should be key events, which could sway investor behavior from one side to the other. 

Important message also came from European Central Bank (ECB). President Christine Lagarde announced, that the bank should stop bond net purchases via the Asset Purchase Programme (APP) and will start to raise interest rates in July and exit sub‑zero territory by the end of September. Previously, indications regarding interest rates revolved around the end of year. This will be a major shift in ECB monetary policy, as this will be first interest rate increase in more than a decade.

Positive news came from China, where the government has started to ease its strict COVID‑19 curbs after main cities reported fewer cases. China’s adherence to its “COVID Zero” policy at all costs was epitomized by the two‑month‑long lockdown in Shanghai and strictly restrained daily life of its 25 million population. China also cut its benchmark reference rate for mortgages by unexpectedly wide margin, its second reduction this year, with the government trying to help the struggling housing sector. Senior officials also pledged further measures to fight the slowdown.

“House view” update

No major changes in May, as the Luminor Investment management team decided to maintain lowered risk allocation budget and higher exposure to defensive sectors (utilities, healthcare and energy). High uncertainty about possible consequences of the war in Ukraine, tightening monetary policy and high volatility in the markets warrant such decision.

Luminor House View

DISCLAIMER

Warnings:

  • This Marketing Communication is not considered investment research and has not been prepared in accordance with standards applicable to independent investment research.
  • This Marketing Communication does not limit or prohibit the bank or any of its employees from dealing prior to its dissemination.

Origin of the Marketing Communication

This Marketing Communication originates from Portfolio Management unit (hereinafter referred to as PMU) – a division of Luminor Bank AS (reg. No 11315936, with registered address at Liivalaia 45, 10145, Tallinn, Republic of Estonia, hereinafter - Luminor). PMU is involved in the provision of discretionary portfolio management services to Luminor clients.

Supervisory authority

As a credit institution Luminor is subject to supervision by the Estonian financial supervision and resolution authority (Finantsinspektsioon). Additionally, Luminor is subject to supervision by the European Central Bank (ECB), which undertakes such supervision within the Single Supervisory Mechanism (SSM), which consists of the ECB and the national responsible authorities (Council Regulation (EU) No 1024/2013 - SSM Regulation). Unless set out herein explicitly otherwise, references to legal norms refer to norms enacted by the Republic of Estonia.
Content and source of the publication

This Marketing Communication has been prepared by PMU for information purposes. Luminor will not consider recipients of this Communication as its clients and accepts no liability for use by them of the contents, which may not be suitable for their personal use.

Opinions of PMU may deviate from recommendations or opinions presented by the Luminor Markets unit. The reason may typically be the result of differing investment horizons, using specific methodologies, taking into consideration personal circumstances, applying a specific risk assessment, portfolio considerations or other factors. Opinions, price targets and calculations are based on one or more methods of valuation, for instance cash flow analysis, use of multiples, behavioural technical analyses of underlying market movements in combination with considerations of the market situation, interest rate forecasts, currency forecasts and investment horizon.

Luminor uses public sources that it believes to be reliable. However, Luminor has not performed independent verification. Luminor makes no guarantee, representation or warranty as to their accuracy or completeness. All investments entail a risk and may result in both profits and losses.

This Marketing Communication constitutes neither a solicitation of an offer nor a prospectus in the sense of applicable laws. An investment decision in respect of a financial instrument, a financial product or an investment (all hereinafter “product”) must be made on the basis of an approved, published prospectus or the complete documentation for such a product in question and not on the basis of this document. Neither this document nor any of its components shall form the basis for any kind of contract or commitment whatsoever. This document is not a substitute for the necessary advice on the purchase or sale of a financial instrument or a financial product.

No Advice

This Marketing Communication has been prepared by Luminor PMU as general information and shall not be construed as the sole basis for an investment decision. It is not intended as a personal recommendation of particular financial instruments or strategies. Luminor accepts no liability for the use of the Marketing Communication content by its recipients.

If this Marketing Communication contains recommendations, those recommendations shall not be considered as an objective or independent explanation of the matters discussed herein. This document does not constitute personal investment advice or take into account the individual financial circumstances or objectives of the persons who receive it. The securities or other financial instruments discussed herein may not be suitable for all investors. The investor bears all risk of loss in connection with an investment. Luminor recommends that investors independently evaluate each issuer, security or instrument discussed herein and consult any independent advisors if they believe it necessary.

The information contained in this document also does not constitute advice on the tax consequences of making any particular investment decision. The estimates of costs and charges related to specific investment products are not provided therein. Each investor shall make his/her own appraisal of the tax and other financial advantages and disadvantages of his/her investment.
 
Risk information

The risk of investing in certain financial instruments, including those mentioned in this document, is generally high, as their market value is exposed to many different factors. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information herein is not intended to predict actual results, which may differ substantially from those reflected. Past performance is not necessarily indicative of future results. When investing in individual financial instruments the investor may lose all or part of their investments.

Important disclosures of risks regarding investment products and investment services are available here.

Conflicts of interest

To avoid occurrence of potential conflicts of interest as well as to manage personal account dealing and / or insider trading, the employees of Luminor are subject to the internal rules on sound ethical conduct, management of inside information,  and handling of unpublished research material and personal account dealing. The internal rules have been prepared in accordance with applicable legislation and relevant industry standards. Luminor’s Remuneration Policy establishes no link between revenues from capital markets activity and remuneration of individual employees.

The availability of this Marketing Communication is not associated with the amount of executed transactions or volume thereof.

This material has been prepared following the Luminor Conflict of Interest Policy, which may be viewed here
 
Distribution

This Marketing Communication may not be transmitted to, or distributed within, the United States of America or Canada or their respective territories or possessions, nor may it be distributed to any U.S. person or any person resident in Canada. The document may not be duplicated, reproduced and(or) distributed without Luminor’s prior written consent.