OREANDA-NEWS. May, in spite of its bad reputation due to a famous saying “Sell in May and go away” turned to be successful for investors both in the stock and bond markets. At the beginning of the month in the stock markets certain nervousness still remained, which was caused by continuous political tension in Ukraine and the anticipation of the elections to the European Parliament with potential risk of “ultra-rights” and “euro-skeptics” getting the majority of seats. It could have caused the atmosphere of political instability in Europe and complicated the process of decision making.

The investors' attention was also drawn by the upcoming referendum in the East of Ukraine and the president election, as everyone was curious how Russia would react and what consequences of the conflict escalation would be. In this context, the stock markets, primarily European, received great support after Mario Draghi speech at the press conference preceding the May meeting, at which he confirmed that the ECB was ready to take actions to support the economy. This allows assuming that the package of stimulating monetary measures, which is intended to decrease the level of inflation and improve economy growth in the euro area, might be announced at the next June meeting. This factor influenced the conditions of consolidation, in which stock markets stayed in the first half of the month without rapid movements. In the second half of the month, when the above mentioned political problems troubling investors were successfully solved, optimism returned to the markets and at month-end practically all main global stock indices showed growth. Outperformance was noticed in the stock market of emerging countries due to ambience in the global stock markets and continuing flow of investors' funds.

In the course of a month, the fund managers were taking tactic actions to fix yield in certain positions that reached target levels. First of all, it related to indices of the European countries. To our mind, the future implementation of stimulating measures by the ECB has been already taken into account in current prices. Therefore, if the expectations of market's members are not met, a considerable correction might take place in the European stock markets. We consider, the risk of a situation

“buy rumors, sell facts” to be high, therefore, until the ECB decision is announced, we are taking “wait-and-see” attitude.

Positive trend also prevailed in the global bond market. Russian government bonds and European corporate bonds showed considerable price growth due to, first of all, rather soft rhetoric from the Russian authorities regarding the acceptance of the election results in Ukraine and cooperation with new Ukrainian authorities. Consequently, the probability of economic sanctions from the Western countries in certain sectors decreased, that facilitated growing demand from investors-non-residents for heavily underestimated bonds of Russian issuers. Quasi-sovereign bonds with long period of redemption of the banking sector were most demanded and showed the most impressive price growth. In its turn, the news about the signing of a record breaking gas contract between Russia and China contributed to increased demand for Eurobonds of the metallurgic sector, as the construction of a gas pipe line to China implies additional orders for this sector products.

In May, in the global corporate stock market investors preferred emerging markets and long duration bonds. The announcement about adoption of a set of stimulating measures made by Mario Draghi and subsequent confirmation made by the FRS about retention of mild monetary policy favored the rates reduction of long-term government bonds of the USA and Germany to their minimum of last 12 months. It resulted in increased demand in all sectors of the bond market, denominated both in US dollars and euro.

The fund managers continue to keep the strategy of investing mainly into bonds with high coupon yield, responding to current situation in the market and taking tactic actions to increase the duration. Russian Eurobonds, in spite of their impressive growth last month, we believe, remain underestimated. However, we do not exclude the risk of correction, in case the situation in the Southeast of Ukraine will be escalated.