April was a strong month for stocks, as the wobbles earlier in the year abated. US technology stocks led the way, fuelled by strong first quarter earnings reports. The sharp rise in bond yields that we saw in the previous two months also eased back, allowing bruised bondholders to recoup some losses.
The Bank of England upgraded its UK growth forecast to +7.25% this year, as the rapid vaccine rollout looks set to unleash pent-up consumer demand. Goldman Sachs went further, predicting that the UK would grow faster than even the rebounding US economy. The UK labour market also strengthened, as the number of workers on furlough fell, and the number of online job adverts hit the highest since the pandemic began. We maintained our overweight to the UK in April, allowing us to benefit fully from the reopening gains. Within the UK, we have positioned portfolios to have high exposure to smaller cap stocks, which tend to be geared towards domestic economic growth.
The US tech giants reported high growth in the first quarter, with Alphabet reporting 34% revenue growth as advertisers ramped up spending, and Apple reporting 54% revenue growth as consumers splashed out on new computers and streaming subscriptions. The growth has partly been fuelled by stimulus cheques, which began landing in Americans’ bank accounts in late March. The continued growth in technology stocks boosted our Blue Whale Growth and Baillie Gifford American funds the most.
Biden also has plans to ramp up spending on welfare and infrastructure, which could stoke demand further. Earlier in April we added to our US tracker, which provides low-cost exposure to all the largest companies listed in America.
The EU’s vaccine rollout got off to a rocky start in the winter, hitting consumer and business confidence. The rollout has now accelerated, but progress remains behind the UK and US. The tourist-dependent Mediterranean countries are hopeful that economies can reopen before the important summer season. Despite the uncertainty, European stocks rebounded in March and early April, so we took the opportunity to trim our holdings, banking our gains and reducing the risk of future downside.
Italian prime minister Mario Draghi unveiled a €220bn package for projects such as high speed rail. Infrastructure spending is designed to create jobs and to equip a country for better long-term growth. We have direct exposure to infrastructure projects around the world through our Foresight fund, which should benefit from Draghi’s plans.
India has been grappling with a resurgence in coronavirus cases, and the country’s economy is now projected to shrink in the second quarter. While the longer-term growth story remains intact, the crisis has weighed on investor sentiment over Indian stocks. More broadly, our Emerging Market Government Bond fund delivered strong returns as falling rates and the weaker dollar eased the pressure on EM governments.
The Financial Times reported that China’s population shrank last year for the first time in five decades, likely beginning a long period of decline exacerbated by the now-defunct one child policy. The Chinese statistics bureau issued a statement denying the shrinkage, but the headwinds are unavoidable. Our Chinese funds invest in areas likely to benefit from such demographic trends, such as goods and services for China’s booming pensioner class.
Tokyo’s stock market had a strong start to a year but fell back in April as investors took profits and the country’s coronavirus reinfection rate picked up. Japan’s vaccine rollout has been sluggish, with only about 2% of the population having received their first jab. In the first half of April we banked some of our gains in Japan and switched into areas we see better growth prospects, such as the US.
The combined effect of pent-up consumer demand and robust fiscal stimulus means that GDP growth figures will look spectacular for the rest of the year. However, such strong growth carries the risk of overheating and inflation. We are positioned to benefit strategically from reopening while continuing to hold long-term bets that should benefit from tailwinds such as technology, demographic ageing, and the push to decarbonise economies.