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Executive Summary

Market Review

After a relatively stable Q1,  which saw equities climb on the back of the economy’s resilience, April saw fresh bouts of volatility.Interest rates (and inflation) continue to be the main driver of volatility for financial markets in the near term.It is important not to look at inflation data in isolation. Economic indicators are largely positive, and households are fundamentally in good shape for now.A wide dispersion across markets means there are abundant opportunities as sentiment and growth expectations continue to improve.

Stability Amid VUCA

High Interest Rates Meet Better Earnings

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” For now, April’s declines look to be within the ‘normal’ range of volatility investors should expect.Such bouts of volatility are not uncommon, with two similar episodes in just the past year where markets recovered from.Despite average intra-year declines of 14.2%, yearly returns were positive most of the time (33 out of the last 44 years)Over the past month, there were further signs that resilient economic activity and recovering corporate earnings can support markets in 2024.

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Economic Growth

Start of a Durable China Rally?

Increasing evidence that we are on a more durable recovery in China equities. The strongest performance sometimes comes when no one is paying attention, and this looks to be another one of those cases:​​

Jan Feb-Apr
China ‘A’ Equities -7.1% +11.1%
Global Equities +1.2% +3.7%

Importantly, the performance over Feb-Apr occurred when fears of higher US interest rates drove declines in other markets.This is the clear benefit of diversification and highlighting the distinctive growth drivers of our Emerging Opportunities positions.

 

Vuca

Focus on Income, Not Rates!

While the environment has become more conducive for bond investors, one still needs to focus on the right source of returns: income.Betting on where interest rates would go has been a challenging strategy this year. High-yield (HY) markets are up 2.0% year to date while Investment grade (IG) bonds are down -1.6% due to IG’s higher duration and rate sensitivity.We continue to harvest the higher income available in select high-yield bond markets while monitoring for potential risks that may prompt us to take some money off the table.​​

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