Market Opinion - August 2023

Market Opinion - August 2023

August was challenging for equity markets globally. Developed and emerging markets faced declines, with poor economic figures as the primary drag on performance. While inflation shows signs of easing in various regions, the prospect of future interest rate hikes remains.

In Europe, markets suffered due to persistent inflation, which hovered at 5.3%. Despite expectations of a decrease, inflation remained static, with core inflation (minus food and fuel) experiencing a slight drop. Rising energy prices pushed inflation in Spain and France upward. The European Central Bank is anticipated to increase interest rates in September. On the brighter side, the eurozone saw its lowest unemployment figures ever, though signs hint at potential labour market fragility.

The UK experienced equity losses in August, influenced by diverse economic indicators and the Bank of England's assertive approach to interest rate hikes. Notably, UK inflation dipped to its lowest since February 2022. Meanwhile, UK GDP experienced 0.2% growth in the year's second quarter, surpassing the Bank's growth predictions.

US markets, including the Dow Jones, Nasdaq, and S&P500, recorded declines in August, attributed to fluctuating economic data and a dimmed growth perspective. US inflation saw a marginal increase, with core inflation dipping slightly. The Federal Reserve, under Jerome Powell, expressed concerns about inflation levels. Notably, Fitch reduced the US credit rating from AAA to AA+, although the move was anticipated and had minimal market influence.

The Asia Pacific region, in sync with global markets, concluded August with downturns. China's slowdown, driven by a stagnant real estate sector, was pronounced. The sectors most affected in China included utilities, industrials, and finance, with the nation entering a deflationary phase. Markets in South Korea, Japan, and India saw declines, though India's information technology and consumer discretionary sectors observed gains.

Emerging markets ended August in the red, lagging behind their developed counterparts. Consumer discretionary, communication services, and utilities sectors suffered the most. Latin American markets, especially Chile, Brazil, and Colombia, were hit hardest. Conversely, Mexican markets, despite losses, outperformed other markets in the region. Asia faced challenges due to China's real estate stagnation, while emerging markets in Europe, the Middle East & Africa (EMEA) saw significant losses led by South Africa, Qatar, and Poland. Interestingly, Egypt, Hungary, and Turkey made gains.

Bond markets grappled with challenges throughout August. Anticipations of prolonged high interest rates initiated a sell-off early on, though some losses were recovered by month-end amidst hopes for a moderated economic deceleration. European business activity retracted more than anticipated, offering a lift to government bonds. UK bonds, however, recorded losses due to upcoming interest rate hikes. Corporate bonds had mixed results in August, with US investment-grade bonds facing significant setbacks.