Performance, April 2021


Growth estimates in the US rose – supported by e.g. herd immunity
Growth estimates for the US continued to advance in April when expectations of 2021 reached 6.3% whereas growth prospects for 2022 came to 4.0%. Among the sources behind the economists’ upgrades were, among other things, the high proportion of Americans who have been vaccinated. Herd immunity has inspired hope of a normalisation, which was also reflected in US sentiment indicators such as ISM.

Positive development in coronavirus numbers in some places but far from all
Whereas the US obtained a very high proportion of people vaccinated of +70%, Continental Europe lagged behind and has reached approximately half this figure. The daily infection numbers are therefore considerably higher here than in the US – but not at all at the tremendously high level we see in India at the moment. Japan’s infection numbers have also been on the increase, yet still at a low level, but Japan’s government does not want to take any chances up to the Olympic Games and has therefore locked down parts of Tokyo.

Historically strong reporting season - on a special background
Global companies are far in the process of Q1 2021 reporting – and true to tradition US companies are fastest at reporting their financial results. Among the leading companies in the US leading index, S&P500, 60% of the companies have turned in results for the first quarter of the year – and a historically high proportion of 87% of the companies have announced positive results. Additional earnings relative to expectations accounted for full 23% on average of the Q1 results released so far. The largest positive surprises were found among companies within discretionaries, financials and communications. The surprises are a result of for instance good crisis management, cautious earnings estimates and a faster-than-anticipated normalisation.

Market performance
Global market equities saw yet another positive month in April – strongly supported by positive growth prospects for the US and a good accounts-reporting season. For this reason, among others, North America was the best-performing equity market in April with an increase of almost 3% - followed by Europe with an increase of about 2%. Global emerging equity markets were under pressure, due among other things to dramatic infection numbers in India and therefore, global emerging equity markets closed approx. unchanged in April. Japan also suffered from growing infection numbers, although from a low level – and this was one of the reasons why Japa-nese equities shed almost 4% on average.

In the Danish bond market, we have seen strong focus on callable bonds. Due the rising yield level, 30-year bonds with a coupon of 1.5% were trading around a price of 100. A considerable part of the callable market con-sists of the very large 1% series with maturity in 2050 and 2053. The price risk of these bonds has been on the increase, and the market has had difficulty absorbing the rising risk. Again in April, bond yields were somewhat mixed – especially with respect to callable bonds. The more long-term low-yielding bonds generally yielded negative returns. For high-yielding bonds extraordinary redemptions at the July interest payment date were generally lower than expected. This resulted in positive returns. Recent figures of foreigners’ share of Danish callable bonds showed that foreign investors continued to increase their holdings.

The slightly falling US yields have generally supported emerging bond markets, and in addition, we saw good news from some of the most troubled countries. In Ecuador, the election returned a market-friendly president, and also new legislation for the central bank in the country was adopted. In April, continued high oil prices supported oil-producing countries such as Angola and Nigeria. The increase in EURUSD by approx. 3% reduced the yields in EM local currencies seen from the point of view of a Danish investor since several of the dollar-related currencies such as Colombia, Kazakhstan, Peru, Ukraine and Egypt weakened vis-a-vis DKK. The focus of attention is still on the effect from Covid-19 on individual countries and on whether the economies will get back on track.   

Credit spreads continued to narrow in April and paved the way for positive yields at high yield whereas rising underlying government bond yields ate most of the yield in investment grade. Apparently, the markets still have confidence in a normalisation of the coronavirus situation over the summer. Expectations of the economic activity are still high, and should we see a slowdown, it is expected that the ECB will increase its programme of corporate bond purchases.