Global investment market review: May 2026

Heather Coulson, Head of Portfolio Management, discusses some of the key influences on markets in May.

In May, the MSCI ACWI Index, a representative measure of global equities across developed and emerging markets, added 6% in sterling terms. Asia Pacific and emerging markets led the way, with the US and Japan also performing robustly. Value gained ground during the month but was outpaced by the rise in growth-oriented stocks. Equity markets market sentiment was positive, with continued strength in AI-related stocks and amid hope of a further curbing of tension in the Middle East. In fixed income, the ICE BofA Global Government Index rose 0.8% in sterling terms. Sterling lost some ground to the US dollar.

Crude oil futures prices declined over the month on growing hopes for a peaceful resolution to conflict in the Middle East. The United Arab Emirates officially exited the Organization of the Petroleum Exporting Countries at the start of the month, in a move that could have longer-term implications for the strength of the cartel. European gas futures rose somewhat, partly because of worries about the cost of refilling strategic reserves.

The FTSE 100 Index, a commonly used representative benchmark of the UK’s largest equities, moved 0.7% higher. The FTSE All Share Index was up 1.2%, as mid-cap stocks outperformed larger names. The UK market trailed the rise in other markets as a lack of exposure to technology stocks hindered the performance of the large caps. The Bank of England’s Monetary Policy Committee did not meet in May, but market expectations still point to the potential for higher rates later in the year. The UK’s annual inflation slowed from 3.3% in March to 2.8% in April, which was below expectations. The slowdown was due to the energy regulator’s price cap in April. Unemployment edged back up to 5.0%, from 4.9%, for the three months to March. The UK manufacturing Purchasing Managers’ Index (PMI) was shown to have held steady in expansionary territory in early estimates for May. The flash UK services sector PMI dipped into contraction in May on weak new orders. Note that a PMI reading over 50 indicates that the manufacturing or services sectors are likely to be expanding.

In US equities, the S&P 500 Index rose 6.1% in sterling terms. The Nasdaq Composite Index, which has a growth focus, was up 9.3%. US stocks benefited from technology-sector strength, with Nvidia doing well among the mega-cap names. The Federal Reserve did not have a monetary policy meeting in May, but minutes from its previous meeting signalled the potential for a tighter policy stance if inflation persists. Annual inflation stepped up from 3.3% in March to 3.8% in April as energy costs continued to rise. The non-farm payrolls came in at 115K job additions in April, compared with 185K in March. However, this was better than expected amid job gains in healthcare, and transport and warehousing. The unemployment rate was flat at 4.3%. The preliminary US manufacturing PMI strengthened, reaching 55.3, from 54.5, helped by new orders and production. The early services PMI saw a marginal decline.

The MSCI Europe ex UK Index rose 4.3% in sterling terms. The Netherlands, Germany and Switzerland led returns in local currency terms. Minutes from the European Central Bank’s (ECB) April policy meeting indicated a readiness to hike rates against a backdrop of energy-driven inflation. Eurozone annual inflation nudged up from 3.0% in April to 3.2% in May, compared with the ECB’s target level of 2.0%. February’s flash eurozone manufacturing PMI eased back somewhat – from 52.2 in April to 51.4 in May – as new orders declined. Meanwhile, the preliminary services PMI remained in contractionary territory.

Equity markets market sentiment was positive, with continued strength in AI-related stocks.

Japan’s equities, as measured by the MSCI Japan Index, increased 5.8% in sterling terms. Despite intervention from Japanese authorities, the yen weakened once more against the US dollar as May progressed. Inflation nudged lower, from 1.5% in March to 1.4% in April. The manufacturing PMI stayed in expansionary territory, but slowed slightly in the preliminary figure for May, on heavy purchasing to limit potential disruption from supply-chain issues. Meanwhile, the flash services PMI moved from 51 to the cusp of contractionary territory of 50 as new business growth eased.

The MSCI Emerging Markets Index added 10.6%. Korea and Taiwan made strong progress, India was flat, while Brazil and China declined in local currency terms. Taiwan and Korea continued to make strong headway on expectations for ongoing demand in the technology hardware segment, with semiconductor companies doing notably well. Inflation rose in South Korea to 2.6% from 2.2% as household utility costs advanced and oil prices continued to impact other sectors of the economy. The Bank of Korea kept its interest rates on hold at 2.5% as policymakers weighed inflationary pressure against weakness in the won. In India the manufacturing and services PMI remained robustly in expansionary territory, though the manufacturing PMI weakened slightly, while inflation edged marginally higher. In Indonesia, rates increased from 4.75% to 5.25% in a bid to bolster the rupiah and put the brakes on inflationary pressure. In contrast, the Mexican central bank lowered interest rates by 25 basis points on economic weakness.

The MSCI AC Pacific ex Japan Index increased 12.3%. At the country level, Korea and Taiwan rose strongly, Australia made marginal headway, India was flat, while China declined. China’s industrial production softened from a 5.7% year-on-year growth (y/y) to 4.1% y/y, missing expectations of 5.9% y/y. Exports, however, saw better-than-expected growth of 14.1% y/y in April amid potential stockpiling by companies on worries about the conflict in the Middle East disrupting supplies. Import expansion remained strong, with growth of 25.3% y/y, on inflationary pressure and solid domestic demand. Australia’s benchmark interest rate was increased for the third time this year amid rising inflation. However, inflation actually slowed somewhat in its April reading, with a move from 4.6% to 4.2%, but remained above the Reserve Bank of Australia’s target range.

Despite intervention from Japanese authorities, the yen weakened once more against the US dollar.

In May, bond markets saw ongoing volatility. Government and corporate bonds saw small increases in sterling terms. The 10-year US Treasury yield moved up (prices fell) from 4.39% at the start of the month to 4.45% at month-end. There was a large yield spike in the middle of the month, as inflationary pressures influenced activity. However, hopes of a ceasefire in the Middle East and softening oil prices helped bring the yield down towards month-end. The UK’s 10-year yield fell as inflation was lower than expected and labour-market worries weighed on the government bond market, while UK political uncertainty following elections in May contributed to volatility. Japanese government bonds yields rose as rate hike expectations continued to build. Corporate bonds benefited from robust company results. Emerging market debt also moved slightly higher.

The FTSE EPRA Nareit Developed Index, a measure of the performance of Real Estate Investment Trusts (REITs), were broadly flat in sterling terms, with a marginal fall of 0.1%. Note that REITs tend to be sensitive to interest rate expectations. In UK commercial property, the retail segment has seen solid improvements in recent quarters, as footfall has increased, vacancy rates have reduced, and there has been robust performance from retail parks and space in central London. However, confidence in current conditions has fallen amid geopolitical uncertainty.

All index data are shown in total return sterling, unless otherwise stated.
Source: FE Analytics