Global markets came under pressure in October, giving back some of the strength built up earlier in the year. Equity markets retreated broadly as renewed Middle East tensions pushed oil prices sharply higher, while scrutiny over the scale and returns of AI related capital spending triggered a rotation away from technology stocks. Government bonds, in turn, found renewed support as investors rotated toward safer assets amid the volatility.
In equities, the rotation away from AI-related technology names was most visible in the US, where the Nasdaq 100 fell 6.7% while the S&P 500 declined a more modest 0.9%. European markets, less exposed to the AI theme, fared considerably better: the STOXX 600 rose 1.9%, the DAX gained 2.5%, the FTSE 100 added 1.2% and the CAC 40 was roughly flat (+0.1%), while peripheral benchmarks lagged, with the IBEX 35 and PSI 20 both down 4.0% and the MIB down 3.6%.
In fixed income, money markets were stable, with the Fed and the ECB both holding policy rates unchanged. Government bonds rallied as the rotation into higher-quality assets pushed yields lower across developed markets: US 10-year yields fell around 36bps and the 2-year almost 30bps, while German Bund yields eased by a similar magnitude, down 26bps at the 10-year point. Sovereign spreads versus Germany moved the other way, widening across European government bond markets as fiscal and political concerns resurfaced. The sharpest move came in France, traditionally viewed as part of the region's core, where the 10-year OAT-Bund spread rose roughly 38bps to 165bps, now wider than several peripheral markets; Italy (+16bps), Spain (+8bps) and Portugal (+4bps) saw comparatively modest widening. In credit market, the investment-grade index Itraxx Europe increased by 3 bps to 66 bps. The High Yield credit index increased by 25 bps to 326 bps.
The fund returned -0.2% in October, as negative contributions from Portuguese and US equity exposure outweighed positive contributions from European equities and investment grade credit.
Written by the fund manager.
