World Markets Review for April 2015 | American Funds

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Market Commentary

May 2015

World Markets Review for April 2015

Global stocks rose modestly amid a strong rally in the energy sector. Rising oil prices, surging M&A activity and central bank stimulus measures helped to support world stock prices despite a slowdown in U.S. economic growth during the first quarter. Emerging markets rallied as market observers pushed back the timing of an increase in interest rates by the Federal Reserve to later in the year. Bond markets declined and the dollar lost ground against the euro, the pound and most other currencies.

Index Returns (Monthly)

April 2015


U.S. Dollar %

Local %

U.S. Dollar %

Local %

MSCI World















MSCI Europe





MSCI Pacific ex Japan





S&P 500





MSCI Japan










Barclays Global Aggregate



Barclays U.S. Aggregate





J.P. Morgan EMBI Global





J.P. Morgan GBI EM Global Diversified





MSCI index returns reflect net dividends. Source: RIMES

North America

U.S. stocks again touched fresh highs in April, but ended only slightly improved after a weak GDP report sparked a late-month sell-off. The Standard & Poor’s 500 Composite Index  gained 1%, as did the Nasdaq Composite index ; both measures hit all-time closing highs on April 24. The Dow Jones Industrial Average  rose just 0.4%.

Energy had the best sector return, advancing 7% as U.S. crude oil futures soared 25% to end the month just under $60 a barrel. Oil services companies such as Transocean and Diamond Offshore Drilling saw gains in excess of 20%, reversing months of declines on hopes the oil price had bottomed.

The health care sector lagged, losing 1%. Biotechnology firms Biogen and Celgene declined as both reported lower-than-forecast sales of key drugs. Within the consumer staples sector, dividend-friendly tobacco stocks had the best returns, but Procter & Gamble slipped as it reported a fifth straight quarter of declining sales, which it attributed in part to the strong dollar. Comcast called off its $45 billion acquisition of Time Warner Cable amid signs regulators opposed the deal; afterward, Time Warner Cable reportedly relaunched merger discussions with smaller competitors Charter and Bright House.

The information technology sector rose 2% overall. Microsoft climbed 20% as a boom in cloud services bolstered its fiscal third-quarter earnings, offsetting poor sales of its Windows and Office products. Apple shares rose 1%; the company reported a 33% increase in profits fueled by its new large-format iPhones and raised its dividend, but hardware problems with its highly anticipated Apple Watch dampened investor enthusiasm. Social network operators Facebook, LinkedIn, Twitter and Yelp all declined as they reported lower-than-expected revenues and/or trimmed their forecasts.

Gross domestic product growth for the first quarter came in at a disappointing 0.2%, calling into question the durability of the U.S. economic rebound. Harsh winter weather, a labor dispute at West Coast ports, the strong dollar and cheap oil were cited as possible contributors to the slowdown. Amid a decline in business spending, the Institute for Supply Management’s March PMI was weaker than anticipated (though it remained in growth mode), and March inflation stayed below the Federal Reserve’s target for the 35th consecutive month. At its April rate-setting meeting, the Fed maintained its positive view of the economy while acknowledging the first quarter’s “transitory” weakness and said it would wait for further signs of economic improvement before it took any action on rates.

Employers added just 126,000 new jobs in March — about half the forecast number. Faster wage growth was a bright spot in the employment picture. McDonald’s announced it would raise wages later this year, joining Target and Wal-Mart in voluntarily hiking its entry-level wage above the federal minimum.

Bonds declined as investors evaluated prospects for higher interest rates. The Barclays U.S. Aggregate Index  shed 0.4%, with issues of longer maturity faring worst. The yield on the benchmark 10-year Treasury note ended 11 basis points higher at 2.03%. Treasury Inflation Protected Securities gained 0.7% as a rebound in the price of oil and the dollar’s broad-based depreciation eased concerns about the possibility of deflation. Municipal issues lost 0.5%. Corporate bonds shed 0.7%; spreads to Treasuries were little changed at 128 basis points. The new issue market witnessed the third-largest deal on record as AT&T sold $17.5 billion of bonds to help finance its acquisition of DirecTV. Oracle, which sold $10 billion of bonds, was among many firms seeking to take advantage of still-low interest rates to cheaply finance dividends and share buybacks.


European stocks declined sharply in the final days of April, erasing gains from earlier in the month amid concerns about slowing global economic growth. Following a disappointing U.S. GDP report, European financial markets quickly reversed course. The MSCI Europe Index  ended the month essentially flat, while the euro gained 4% against the U.S. dollar.

Markets also were pressured by the ongoing debt crisis in Greece, where new political leadership is seeking to renegotiate the terms of a €240 billion international bailout. Several attempts to resolve the crisis failed and the resulting impasse raised fears yet again that Greece might default on its obligations and exit the 19-member eurozone. Contentious negotiations continued through the end of April. Yields on short-term Greek sovereign debt soared well above 20% at times, reflecting the high level of uncertainty.

The rapid reversal in sentiment came despite high hopes for the European Central Bank’s new U.S.-style quantitative easing program. In March, the ECB launched a €60-billion-a-month bond-buying initiative designed to encourage lending and boost the euro-zone economy. The aggressive policy move sparked a strong first-quarter rally in European stocks and bonds, prompting ECB President Mario Draghi to declare that the bank’s actions are “continuing to underpin confidence in the euro.”

Sector returns were mixed, highlighted by a rebound in the energy sector. Energy stocks rose 8% amid stabilizing oil prices and a jump in M&A activity. Shares of BG Group soared after Royal Dutch Shell said it would acquire the British natural gas company for $70 billion. BG shares ended the month 44% higher, while Shell advanced about 3%. Falling oil prices have raised expectations for consolidation in the industry, sending shares of several other European oil companies higher, including BP, Total and Eni.

Telecommunication services and utilities stocks also gained ground, rising about 2% as M&A speculation spread to those sectors, as well. Shares of Vodafone moved higher amid talk that the telecom giant may be on the hunt for new acquisitions, including cable TV and wireless provider Liberty Global. Among utilities stocks, Centrica shares rose to a two-month high as speculation grew that it might be a takeover target following a massive write-down in February of its oil and gas assets. Centrica shares ended the month 4% higher.

Health care and consumer discretionary stocks declined, losing about 1% overall. Bayer shares fell amid concerns about increasing competition for its best-selling drug, blood thinner Xarelto. In the consumer discretionary sector, shares of automakers BMW, Daimler and Volkswagen slipped on worries about a slowing global economy. Among financial stocks, Deutsche Bank shares sank after Germany’s largest lender reported a 50% decline in profits — primarily due to a $2.5 billion settlement related to allegations that the bank manipulated a key benchmark for European interest rates.

In bond markets, investor sentiment also reversed course late in the month, with German bonds suffering the biggest two-day sell-off since November 2011. For the month, the yield on Germany’s benchmark 10-year note rose 19 basis points to 0.37%. Prior to the late-month reversal, bond yields had fallen to historic lows in several euro-zone nations. In one extreme example, Switzerland on April 8 issued 10-year notes at a negative yield of −0.055%. It was the first time in history that a country has sold 10-year maturities with a yield below zero.


Japanese equities rose, supported by strong demand from foreign investors and the government pension fund. Early gains were reduced on the final day of trading as investors took profits, disappointed that the Bank of Japan refrained from expanding its stimulus program. The yen finished slightly stronger against the U.S. dollar, while the MSCI Japan and MSCI Pacific  indexes each advanced 3%.

Financial stocks rose 8%. The three megabanks, Mitsubishi UFJ, Sumitomo Mitsui and Mizuho Financial, advanced as investors flocked to the attractive valuations of banking stocks. Several industrial companies also had strong returns. East Japan Railway rebounded from a poor March and climbed 10%. Mitsubishi Electric also rose after announcing a 53% increase in annual profit, while Itochu jumped 14% after the company said it expected to generate record profits in the current fiscal year. Elsewhere, telecommunications giant SoftBank gained after forming a partnership with online file sharing company Dropbox. SoftBank’s shares were also supported by news that its Sprint unit would provide network access for Google’s planned wireless service.

Several exporters experienced strong results. Sony gained 14% after raising operating profit forecast for the fiscal year. The electronics firm is expecting higher sales of Playstation gaming consoles and of display sensors used in mobile phones. Panasonic also climbed after reporting a net profit increase of almost 50% as its focus shifts from consumer electronics to automotive technology. Japan Tobacco rose 11%, benefiting from its high exposure to Russia as the ruble continued to rebound.

In contrast, Tokyo Electron declined. Shares of the world’s third-largest semiconductor equipment manufacturer fell 21% after regulators blocked a planned takeover by Applied Materials. Meanwhile, valuation concerns weighed on shares of pharmaceutical companies, including Eisai, Astellas Pharma and Santen Pharmaceutical.

Economic indicators have been mixed since Japan’s emergence from recession in the calendar fourth quarter. In March, the country posted its first monthly trade surplus since 2012 due to a combination of stronger shipments of cars and electronics and lower oil prices. The consumer confidence index reached the highest level since November 2013. However, this did not translate to higher retail sales, which plummeted 9.7% in March from a year earlier. The Bank of Japan lowered its price projections and pushed the date for achieving its 2% long-term inflation goal into mid-2016. Additionally, Fitch downgraded the country’s credit rating one notch following a similar move by Moody’s late last year.

The MSCI Australia Index  fell 2%. The Reserve Bank of Australia left interest rates unchanged after its April meeting, citing an overvalued currency and waning demand for a variety of commodities as continued headwinds to economic growth. The decision — which surprised investors — caused the Australian dollar to strengthen. For the month, the currency appreciated 3%. Speculation that the nation’s credit rating could be at risk given widening government deficits hurt the share prices of the largest banks. Commodity-related shares helped buoy markets amid a rally in iron ore and oil prices. Mining giant BHP Billiton rose 3%, while Origin Energy gained 13%.

Shares listed in Hong Kong rose 9%, helped by a surge in flows from mainland Chinese investors. Late in March, the China Securities Regulatory Commission announced new guidelines to enable local mutual funds to join high-net-worth investors in purchasing Hong Kong–listed stocks via the Shanghai–Hong Kong Stock Connect. Hong Kong Exchanges & Clearing gained more than 50% as the company said it would move to expand its trading capacity to ensure it can handle the higher volumes that have come through the cross-border trading channel.

Emerging Markets

Emerging markets stocks rallied, despite concerns about weak corporate earnings, as investors seemed to take comfort from a likely delay in U.S. interest rate hikes. Higher commodity prices following last year’s sharp drop also boosted sentiment. The MSCI Emerging Markets Investable Market Index (IMI)  advanced 8%, led by energy, materials and financials. Emerging markets bonds gained amid the continued search for yield in the developing markets. Widespread currency appreciation also lifted local bond returns in U.S. dollar terms, with currencies such as the Brazilian real regaining ground against the U.S. dollar.

Signs that the oil price rout may have ended bolstered equity markets in Brazil and Russia. Shares of Gazprom advanced 25%, fueled by expectations for an improving outlook on the heels of weak annual profits. The MSCI Russia IMI  rose 17%, supported by the 13% appreciation of the ruble. Russia’s central bank continued to loosen monetary policy, cutting interest rates by 150 basis points to 12.5%, following a sharp hike to 17% at the end of last year.

Brazilian stocks rose 17% despite ongoing worries about sluggish economic growth. Ordinary shares of Petrobras rallied 59%; the Brazilian energy heavyweight announced a near $17 billion write-down after a massive corruption scandal shook investor confidence in recent months. The Brazilian real gained 7% against the U.S. dollar following a 17% drop in the first quarter. The country’s central bank further hiked interest rates, lifting the Selic to 13.25% as inflation remained well above target.

The MSCI China IMI  rallied 18% as investors appeared to cheer continued policy easing measures. Evidence of slowing economic growth boosted expectations for further loosening: China’s GDP expanded 7% in the first quarter, compared with 7.3% in the fourth quarter — its weakest pace in six years. The country’s central bank unexpectedly cut reserve ratio requirements — the amount banks must set aside in cash — by 100 basis points, offering additional reductions for select rural and agricultural firms. The move was the second reduction in reserve ratio requirements this year. Bank shares rose sharply. Financial stocks also supported equity gains in South Korea. The MSCI South Korea IMI advanced 7%, with several banks posting robust earnings despite low interest rates. South Korea’s central bank cut rates to a record low of 1.75% in March.

Several oil-importing markets in Asia retreated. Indian stocks lost ground, falling 6% after strong gains earlier in the year. Shares of Infosys shed 14% as the software services giant issued a weaker-than-expected sales forecast following a string of strong earnings reports. Shares of drug maker Sun Pharmaceuticals also declined after rising sharply amid enthusiasm over its merger with Ranbaxy Laboratories. Meanwhile, Indonesian equities lost 9%, hurt by weak corporate profits. Thai stocks lagged broader market gains, ending flat amid concerns about a dim economic outlook. The Bank of Thailand surprised markets, reducing the benchmark interest rate to 1.5%.

In debt markets, Venezuelan bonds rallied on the heels of sharp declines earlier this year, helped by the stabilization of oil prices and investor hopes that the country might be able to avoid a debt default. Local bond markets rebounded, with currency appreciation supporting strong gains in Brazil and Russia. But Turkish local debt fell further as the lira continued to slide; the country’s central bank kept interest rates steady in the face of stubbornly high inflation. The lira depreciated 3% against the dollar, taking its year-to-date loss to 13%.

Corporate issuance remained robust as companies sought to take advantage of lower global interest rates. A number of oil and gas companies issued debt to help offset the impact of falling oil prices last year. China Petrochemical (Sinopec) sold $6.4 billion via a combination of U.S. dollar and euro-denominated debt in Asia’s third-biggest bond sale on record, next only to issues by the Bank of China and Alibaba in 2014. State-owned China National Offshore Oil Corporation (CNOOC) sold nearly $3.8 billion in U.S. dollar debt.

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Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice. 

Terms and Definitions
A market capitalization-weighted index based on the results of approximately 500 widely held common stocks.
Bloomberg Barclays Global Aggregate Index represents the global investment-grade fixed-income markets.
Dow Jones Industrial Average is a price-weighted average of 30 actively traded industrial and service-oriented blue chip stocks.
MSCI Australia Index is a free float- adjusted market capitalization- weighted index that is designed to measure the equity market performance of Australia.
MSCI China IMI is a free float-adjusted market capitalization- weighted index that is designed to measure the equity market results of China.
MSCI EAFE (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization weighted index that is designed to measure developed equity market results, excluding the United States and Canada. Results reflect dividends net of withholding taxes.
MSCI Emerging Markets Investable Markets Index measures large, mid and small-cap segments, covering approximately 99% of the free float-adjusted market capitalization of more than 20 emerging equity markets.
MSCI Europe Index is a free float-adjusted market capitalization-weighted index that is designed to measure results of more than 10 developed equity markets in Europe.
MSCI Japan Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market results of Japan.
MSCI Pacific ex Japan Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market results of the developed markets in the Pacific region, excluding Japan.
MSCI Pacific Index is a free float-adjusted market capitalization- weighted index that is designed to measure the equity market results across 5 Developed Markets countries in the Pacific region.
MSCI Russia IMI is a free float- adjusted market capitalization-weighted index that is designed to measure the equity market results of Russian securities listed on MICEX Stock Exchange.
MSCI United Kingdom Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market results of the United Kingdom.
MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure results of more than 20 developed equity markets. Results reflect dividends net of withholding taxes.
NASDAQ is a broad-based index that measures all NASDAQ domestic- and international-based common stock listed on the NASDAQ stock market and is calculated using a market-capitalization-weighted methodology.
Represents the U.S. investment-grade fixed-rate bond market.
The J.P. Morgan Emerging Market Bond Index (EMBI) Global Diversified is a uniquely weighted emerging market debt benchmark that tracks total returns for U.S. dollar-denominated bonds issued by emerging market sovereign and quasi-sovereign entities. This index is unmanaged, and its results include reinvested dividends and/or distributions but do not reflect the effect of account fees, expenses or U.S. federal income taxes.
The J.P. Morgan Government Bond Index – Emerging Markets (GBI-EM) Global Diversified covers the universe of regularly traded, liquid fixed-rate, domestic currency emerging market government bonds to which international investors can gain exposure. This index is unmanaged, and its results include reinvested dividends and/or distributions but do not reflect the effect of account fees, expenses or U.S. federal income taxes.