At a glance
- It hasn’t been a strong week for China. Retail sales, industrial output, and investments slowed more than expected last week; Hong Kong’s Hang Seng index also entered bear market territory. China’s largest real estate developer, Evergrande Group, then filed for US bankruptcy protection amid fears of a more pronounced economic slowdown. Chinese policymakers responded with rate cuts to boost the economy, but did lower rates less than anticipated by markets, impacting our overweight position on Asia-Pacific equities.
- Most equity markets were down last week, whether in US, Europe or Asia, reflecting sentiment around some of the weak economic data coming out of China. The European stock market wobbled amidst recession fears, specifically concerning the weakening manufacturing sector. Japan did outperform the Eurozone though, supporting our overweight tactical tilt of Japan vs Eurozone equities. Our defensive positioning in equities within flagship portfolios aims to safeguard against major market disruptions. Over the past three weeks, this defensive positioning has supported the performance of our flagship portfolios.
- In the UK, inflation cooled to 6.8%. However, core (which strips out food and energy prices) and services inflation remained elevated. This coupled with the high wage growth rate point towards a likely rate hike in September.
- Finally, an unexpected Fitch Ratings downgrade saw US Treasury yields climb above 4.2%, closing in towards 5-year highs of 4.3%.
How we’re positioned in flagship portfolios
- Our positioning remains consistent with our prior updates. Relative to our long-term allocation, we're still overweight high-quality bonds and slightly underweight riskier equity and high-yield credit markets. Our equity strategy remains defensive in light of global economic uncertainties.
- Our view remains that the corporate earnings outlook for Europe, and to an extent in the US, could deteriorate. Therefore, we think our investment in European and US low-volatility stocks can benefit in such a scenario, just like quality dividend payers.
What we’re watching
- This week, comments from the Jackson Hole meeting of central bankers are likely to take centre stage, especially the US Federal Reserve’s (Fed) comments around a possible rate pause or cuts. Last year, US Fed chair Jerome Powell gave a speech that ultimately resulted in the S&P 500 falling about 15% by the end of September. This year, with US inflation more under control and 10-year yields already high, there should be less pressure on the Fed Chair. There could also be comments from other central bankers from Europe, the UK and Japan.
- Nvidia reports this week – the semiconductor company has been the poster child of the AI boom in 2023. Nvidia’s results and outlook could not only affect the stock price but also provide some signals for US tech stocks and the broader market given how important sentiment around AI can be.
- This week, we get the US flash Purchasing Managers’ Indices from S&P Global – a gauge that’s widely watched by investors on activity across manufacturing and services. These could offer insights into whether the US economy is still resilient despite some global slowdown.
Past performance is not a reliable indicator of future returns.
Market Performance
Cumulative Total Returns | 1W | 1M | YTD | 1Y | 3Y | 5Y | Yield | P/E Ratio |
STOCK MARKETS | ||||||||
World Large & Mid Cap | -2.5% | -4.6% | 11.2% | 3.1% | 21.2% | 40.7% | 2.4% | 15.9 |
US | -2.1% | -4.2% | 14.7% | 2.8% | 30.2% | 60.4% | 1.7% | 19.0 |
Eurozone | -2.3% | -3.5% | 11.7% | 10.3% | 32.0% | 29.4% | 3.9% | 11.8 |
UK | -3.4% | -1.8% | -0.1% | -1.4% | 30.7% | 12.4% | 4.6% | 10.3 |
EM | -2.8% | -4.5% | 2.2% | -3.6% | -5.0% | 11.4% | 3.2% | 12.1 |
Japan | -3.0% | -1.2% | 20.7% | 14.7% | 48.3% | 50.4% | 2.5% | 14.6 |
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BOND MARKETS | ||||||||
UK Government | -1.3% | -2.8% | -6.4% | -17.3% | -33.0% | -22.6% | 4.8% | |
US Treasuries | -0.4% | -2.2% | -0.3% | -4.3% | -15.5% | 0.2% | 4.6% | |
Euro Government | -0.2% | -1.5% | 1.4% | -7.6% | -18.5% | -10.0% | 3.4% | |
Global Corporate | -0.8% | -2.7% | 2.2% | -0.9% | -14.5% | 1.0% | 5.5% | |
Global High Yield | -1.2% | -1.5% | 5.5% | 5.2% | -0.9% | 9.9% | 9.3% | |
EM Sovereign Hard | -2.0% | -2.8% | 2.5% | 1.7% | -14.9% | -0.6% | 8.3% | |
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COMMODITIES (USD) | ||||||||
Gold | -1.3% | -4.5% | 3.6% | 7.4% | -5.6% | 59.5% | ||
Brent Crude Oil | -2.3% | 6.7% | 2.7% | -3.2% | 65.9% | 32.3% | ||
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CURRENCIES | ||||||||
GBP EUR | 1.0% | 0.9% | 3.7% | -1.0% | 5.6% | 5.1% | ||
GBP USD | 0.3% | -2.3% | 5.4% | 6.7% | -3.8% | -0.1% | ||
EUR USD | -0.7% | -3.2% | 1.6% | 7.8% | -8.9% | -4.9% |
Data as of 18/08/2023. The Yield and P/E figures for stock markets respectively use 12m forward dividends and earnings divided by the index’s last price. For bond markets, the yield to maturity is used.
Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Bloomberg does not approve or endorse this material or guarantee the accuracy or completeness of any information herein, nor does Bloomberg make any warranty, express or implied, as to the results to be obtained therefrom, and, to the maximum extent allowed by law, Bloomberg shall not have any liability or responsibility for injury or damages arising in connection therewith Note: Past performance is not a reliable indicator of future returns.