FANews
FANews
RELATED CATEGORIES
Category Investments

Monthly global markets review - August 2023

08 September 2023 Philip Robotham, Head of Intermediary at Schroders South Africa
Philip Robotham

Philip Robotham

A look back at markets in August when shares fell amid worries over China's property sector.

The month in summary

Global shares fell in August amid worries over renewed weakness in the Chinese real estate sector. Economic data from China also continued to be worse than expected and emerging markets underperformed their developed peers. Government bond yields rose (meaning prices fell).

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

US

US equities declined in August. Investors’ confidence that the Federal Reserve’s (Fed) tightening cycle ended with the rate rise in July took a knock due to indications that policy makers are divided on next steps. Economic data for the US remained robust.

Minutes from the Fed’s July meeting showed that while most members had agreed that a 25 basis point hike was appropriate, a minority preferred to keep rates unchanged.

On the data front, retail sales improved in July versus June, although that data was likely influenced by discount activity including Prime Day. Industrial activity slowed a little in August with the flash purchasing managers’ index (PMI) dropping to 50.4 from 52 (in the PMI surveys a reading below 50 implies contraction, while a reading above 50 implies expansion). Manufacturing contracted further while service sector growth slowed The unemployment rate rose to 3.8% from 3.5% in July, far above economic projections of an unchanged reading. Inflation (CPI) ticked up slightly in July to 3.2% from 3.0%.

Several of the household-name tech giants experienced a pullback and weighed on the index overall. At the sector level, consumer staples companies were generally weaker, as were financials and real estate. Energy stocks were more resilient over the month, likely buoyed by tighter oil supply.

Eurozone

Eurozone shares fell in August. Energy and real estate were the only sectors to register a positive return, with all others declining. Some of the steepest declines came from sectors that are most sensitive to the economic backdrop, including consumer discretionary. Bank shares experienced volatility after Italy announced a tax on banks’ excess profits, although shares largely recovered after the government later clarified that the tax would amount to no more than 0.1% of a bank’s assets.

Eurozone annual inflation was estimated at 5.3% for August, staying stable compared to July. However, “core” inflation, which strips out food and energy prices, eased. Eurozone unemployment was 6.4% in July, the same level as in June. Eurostat data also showed that money supply in the single currency area shrank in the 12 months to July for the first time since 2010.

In terms of business activity, the flash HCOB purchasing managers’ index (PMI) signalled a steepening downturn, hitting a 33-month low of 47.0 in August.

The data all contributed to the debate about the European Central Bank’s next move when the governing council holds an interest rate setting meeting on 14 September.

UK

UK equities fell over the month. The market was held back by concerns around the outlook for the Chinese economy, which weighed on the basic materials and financials sectors in particular. Domestically-focused areas of the market were weak amid signs of a deteriorating UK macroeconomic outlook and mixed inflation data. While it was revealed that headline inflation had moderated further in July to 6.8% from a year earlier, the annual rate of core consumer prices index (CPI) inflation was unchanged at 6.9%, according to latest data from the Office for National Statistics (ONS).

Concerns that high inflation could become entrenched were further reinforced by other news from the ONS that annualised private sector wage growth picked up to 7.9% in the three months to June. The Bank of England increased base interest rates from 5% to 5.25% and warned that rates would need to remain “sufficiently restrictive for sufficiently long” to help tame inflation.

While it was revealed that the UK economy had grown by 0.2% in the second quarter, beating consensus expectations of zero growth, forward-looking indicators of economic activity deteriorated. The first, or “flash”, reading of the composite purchasing managers’ index – which tracks the performance of the services and manufacturing sectors – fell below the 50 mark in August, being the level which separates contraction from expansion.

Meanwhile, sentiment towards domestically-focused areas was further impacted by worsening prices trends in the housing market, with the consumer discretionary and real estate sectors both underperforming. Energy was the only sector to rise over the month against the backdrop of higher oil prices.

Click here to read more...

Quick Polls

QUESTION

South Africa went to Davos to pitch itself as an investor-friendly destination, then signed an Expropriation Act. What message does this send to global investors?

ANSWER

Invest at your peril
SA is open for business
Two steps forward, one land grab back
Welcome to Hotel California
fanews magazine
FAnews February 2025 Get the latest issue of FAnews

This month's headlines

Unseen risks: insuring against the impact of AI gone wrong
Machine vs human: finding the balance
Is embedded insurance the end of traditional broker channels?
Client aspirations take centre stage as advisers rethink retirement planning
Maximise TFSA contributions before year-end
Subscribe now