THINK DIFFERENTLY

Market Commentary Aug 2023 Banner

Executive Summary

Market Review

September saw strong performance for U.S. and Chinese equities despite historically poor seasonality.​​ The S&P 500 and China equities were down 4% early in the month but they rebounded strongly as announcements of an outsize rate cut by the Federal Reserve and unexpected large-scale stimulus measures from the Chinese government boosted markets.U.S. equities reached new highs, while Chinese equities gained over 20% for the month, marking a remarkable recovery after years of declinesAs more economies transition to a late-stage growth cycle and significant events like the U.S. presidential election approach, investors must be prepared for more volatility ahead.

Stability Amid VUCA

Central Banks Talk, Markets Listen

Following rapid rate hikes in 2022-2023 to combat high inflation, many central banks worldwide are now easing policies, to stimulate growth and prevent a meaningful downturn. A synchronized easing reflects a broader shift in global monetary policy as inflation pressures subside, which should continue to support risk assets – notably, China’s easing may also bolster global expansion at a time when U.S. growth is slowing.Recent developments in China have benefitted our Emerging Market positions due to the undervalued nature of Chinese assets. We continue to remain tactical as we assess the impact of government measures on the housing crisis and the broader economy.

Economic Growth

Crossroads: Growth or Further Slowdown?

Earnings is a key driver and determinant, among others ‘true drivers’, of whether markets can rise over time. Historically, sharp declines in earnings have signaled recessions, often leading to poor market performance.​​ The latest economic data indicates that the U.S. is not currently in a recession. Key indicators, such as the manufacturing PMI and labour market trend, suggest a phase of slowing growth rather than a recession. We remain cautiously optimistic going into the end of the year, balancing higher quality segments such as Healthcare, which tend to be more resilient during a slowdown, with positions like Emerging Markets which have better upside in a recovery scenario.

Vuca

Finding the ‘Right’ Income!

Declining yield environment has made it challenging for investors seeking income.​​ Government bond yields have dropped from around 5% to just over 3.5% today in four months, leading to reduced returns. Corporate bonds are experiencing similar declines, offering less compensation for credit risk.Investors seeking higher income should look beyond standard corporate bonds. Asset-Backed Securities can offer slightly higher returns than investment-grade government bonds. Additionally, high-yield markets, particularly in certain Emerging Markets, provide yields 3-5% above cash.

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