Thailand and Mexico were also behind the index in the month.
Brazil and Qatar posted small positive gains and outperformed, as did India even as the rupee depreciated against the dollar. Hungary also gained, supported by positive sentiment regarding the central bank’s bigger-than-expected reduction in interest rates.
Taiwan and Korea outperformed strongly, led by technology shares on the back of optimism about the AI theme.
Greece was the top-performing market in May as the ruling New Democracy party secured a 41 per cent share of the vote in the country’s national election. This better-than-expected outcome eased fears of a multi-party coalition.
Global bonds
Government bond yields generally climbed during May but there was divergence between markets, with weaker data across the eurozone leading to the market’s outperformance.
The month kicked off with the US Fed announcing its tenth interest rate hike in just a little over a year. The 0.25 per cent increase brought the Fed funds rate to a target range of 5 per cent to 5.25 per cent – the highest since August 2007.
Both the BoE and ECB followed suit by raising interest rates 0.25 per cent each. The ECB also announced that it expects to end reinvestments under its asset purchase programme from July 2023, while acknowledging significant risks to inflation.
The US 10-year yield increased from 3.42 per cent to 3.63 per cent, with the two-year rising from 4.01 per cent to 4.40 per cent.
Germany’s 10-year yield decreased slightly from 2.31 per cent to 2.27 per cent. The UK 10-year yield saw the largest hike as it rose from 3.72 per cent to 4.18 per cent and two-year increased from 3.78 per cent to 4.34 per cent.
Global growth concerns re-emerged, with activity data in China showing a marked slowdown.
Manufacturing activity was weak across all major economies, but was most notable in the eurozone, where the PMI showed a deep contraction and was significantly below expectations. Service sectors across major economies showed continued resilience.
It was this resilience, particularly in light of continuing wage pressures, that prompted a hawkish response by a number of Fed members as the month progressed.
Towards month-end it appeared that a deal on the US debt ceiling would be reached. This assuaged market concerns and dampened volatility.
The UK bond market underperformed the US and Europe mainly due to stickier-than-expected inflation that might drive the BoE to raise rates longer than its developed market peers.
A tight labour market and resultant wage pressures continue to be a concern for UK policymakers.
The end of the month brought more positive news for the eurozone, with some of the regional inflation prints coming in significantly lower than expected.
