The end of optimism. Both bond and stock funds begin to decline

Stocks and bonds lost slightly in price in April. The international index of world stocks MSCI weakened by 3.9 percent. Among the most affected was the technology sector, in which share prices retreated from the extreme values ​​to which bets on the use of artificial intelligence drove them in the previous half-year. US inflation data ended the optimism of the first quarter. The disinflation process has stalled and core inflation is still far from the Fed’s (US central bank) inflation target.

In the Czech Republic, inflation remained at two percent in March as well, thus hitting the inflation target of the Czech National Bank (ČNB). Year-on-year GDP growth for the first quarter – by 0.4 percent – ​​confirms that the domestic economy has come out of recession, but it is still a very low number. Together with inflation, this was enough for the central bank to further reduce the base interest rate.

At the monetary policy meeting at the beginning of May, the CNB Board unanimously decided on the fourth decrease in the repo rate in a row, by half a percentage point to 5.25 percent. In subsequent meetings, central bankers are likely to slow down the pace of rate cuts to keep inflation under control going forward.

For the first time since last fall, prices fell on the developed stock markets, on average, shares depreciated by roughly 4 percent month-on-month. But emerging market stocks held on to gains, thanks mainly to rising prices in Chinese and Central European stocks.

The current results season, which surprises rather positively, can restore a better mood to investors, and the outlook for companies is not at all gloomy either. But there are also exceptions – for example, the Meta company disappointed investors with a worse sales outlook despite solid results. Traditionally, very strong results were reported by giants Microsoft and Alphabet (Google).

The average performance of the koruna globally diversified equity funds offered in the Czech Republic (PIF-AK index) was around -2.6 percent in April. Over the past twelve months, investors are in the red by an average of 19.3 percent.

Although the stock markets fell on average, some did well. For example, the stock market index of Central European countries, including the Czech stock exchange, showed a positive appreciation of around three percent. The group of specially focused equity funds, which concentrate either on specific regions or sectors (ie the PIF SPEC index), managed to maintain the values ​​of last month. In this group there are special funds that have different strategies and results.

So far, this year is not looking good for the bond markets. Their price decline (and revenue growth) accelerated in April. This is mainly due to the resilience of US inflation, which scares investors. They are therefore reassessing their bets on a rapid drop in interest rates. The yield on the US ten-year government bond rose to 4.7 percent in April.

Unfortunately, even in the Czech Republic, despite the reduction of the base rate, long-term yields went up and bond prices fell, in line with other countries. This has had a negative impact on conservative bond funds. Long-term local bond yields rose significantly above four percent.

The average appreciation of bond funds (PIF-DLUH index) over the last month was negative – 0.7 percent below zero. But conservative funds are up 6.3 percent over the past 12 months. Conservative investors who put money into quality bond funds can enjoy a real appreciation of their reserves. The appreciation of the funds is now several times higher than the year-on-year inflation, which fell to two percent over the last year.

Risk bond funds (PIF-HY index) also fell slightly and ended April with an appreciation of -0.4 percent. Year-on-year, they are up by 10.4 percent.

Mixed funds (PIF-MIX index) in accordance with the correction of share and bond prices have written off -1.6 percent month-on-month and are 10.2 percent in profit year-on-year.

NextPage Media, which operates the website Peníze.cz, is part of the Partners group.

Share the article before I delete it