Select Portfolio Commentaries

Both developed and emerging market equities had a strong start to 2023.

Investor sentiment has been boosted by China’s relaxation of the zero- Covid policy. China has also eased its regulatory crackdown on technology companies and offered support to the distressed property market. In addition, it is anticipated that the Central Banks are nearing the peak of their interest rate hiking cycle, which assisted both equities and bonds, where yields fell and prices rose.

After a market rally the previous month, most equity markets remained volatile in December and finished lower. China proved to be the exception as shares were boosted by the relaxation of its zero-Covid policy and the announcement of further support for the ailing property market. Central Banks hawkish rhetoric impacted the performance of bonds as they reiterated plans to continue on the course of tighter monetary policy despite inflation showing signs of having peaked. Thus, bond yields rose, and their prices fell.

The better than expected US inflation figures led to a rally in equity markets.

On the day the data was released the American S&P 500 and Nasdaq 100 indices were up 5% and 7% respectively. The latter was a relief for technology stocks, which have been amongst some of the worst performing during 2022.

After a volatile start to October, stock markets ended on a positive note. Developed market equities returned 7%, and although emerging market equities fell 3%, these still recovered from a more severe fall at the start of the month. However, geopolitical risks remained at the forefront of investors’ minds, with tensions between Russia and Ukraine escalating. Furthermore, leading economic indicators have shown a slowdown in developed market activity and therefore an increased risk of recession.

Equity and bond markets declined in September. This was especially the case in the UK as markets reacted very negatively to Kwasi Kwarteng’s “Mini Budget”. Sterling fell in value against all major currencies and the yield on UK Gilts markedly increased. This led to the capital value of bonds falling and concerns about future mortgage rates and the knock on effect this could have on the UK housing market.

Equity and bond markets became increasingly more volatile in August, increasing investor expectations of further interest rate rises being required to counter the high and persistent level of inflation. During August Sterling continued to weaken, particularly against the US Dollar.