Global equity markets faced a tough time in August, posting widespread losses. Emerging markets underperformed developed markets.
China’s economic concerns persist as its real estate sector stalls, which is having an impact on other markets in Asia.
UK inflation continues to fall, and GDP growth shows the economy to be resilient. Eurozone and US inflation remains sticky.
Equity markets endured a tough month in August, with both developed and emerging markets posting losses as weak economic data dragged on performance. Emerging markets underperformed developed markets. In Asia, this was largely due to concerns over the Chinese real estate sector and in Latin America, poor sector performance weighed on markets. Inflation in many regions continues to show signs of slowing down, though interest rate increases aren’t yet believed to be over.
European markets ended August down. This was largely because inflation was stickier than expected, and consumer confidence fell, negatively impacting markets.
Though forecasts expected a fall in inflation over the month, it remained the same, at 5.3%. Core inflation (excluding food and fuel) did come down slightly – though overall inflation in Spain and France rose because of higher energy prices. So, the European Central Bank is expected to raise interest rates in its September meeting.
Despite weak economic growth, eurozone unemployment hit a record low, though falling vacancies in some regions indicate that there may be some weakness in the labour market.
UK equities also lost ground in August – due to mixed economic data, and the Bank of England’s (BoE) continued hardline stance on interest rate rises.
Though UK inflation fell significantly again last month, the Bank is expected to announce a further 25 basis point (bps) increase in September. Inflation is now at its lowest level since February 2022.
Office of National Statistics (ONS) data showed that UK gross domestic product (GDP) grew by 0.2% in quarter two of this year, compared to the quarter before. This showed that the UK economy was more resilient than expected, beating the BoE’s growth forecast.
US markets declined over August, with the Dow Jones, Nasdaq and S&P500 all posting losses. This was again due to mixed economic data, and a weaker growth outlook for the economy.
US headline inflation rose slightly, while core inflation (excluding food and fuel) fell marginally. Jerome Powell, chair of the Federal Reserve (Fed) said after the Jackson Hole meeting that although down from its peak, inflation remained too high. The Fed is ready to raise interest rates again if appropriate.
After the June vote to increase the US debt ceiling, ratings agency Fitch downgraded the US credit rating from AAA to AA+. It cited “a steady deterioration in standards of governance over the last 20 years”. This was largely expected, having been flagged in May, so had less of an impact on markets.
In line with other global equity markets, Asia Pacific markets also ended August down. New Zealand, China and the Philippines were among the worst performers, with all sectors also delivering negative returns.
China’s economic slowdown was further compounded in August as its real estate sector stalled. Aside from that, utilities, industrials, and finance were also among the worst performers and the country entered deflation.
South Korean markets fell in line with global peers, with energy and materials lagging most. Japanese and Indian markets also fell, but to a lesser extent, faring better than others in the region. India was boosted by gains for the information technology and consumer discretionary sectors.
Emerging market equities also ended the month down, underperforming developed markets. At a sector lever, consumer discretionary, communication services and utilities were most weak across emerging markets.
At a regional level, emerging markets in Latin America lagged most, with Chile, Brazil and Colombia all detracting. Mexican markets perform best – still recording losses but less so than the rest. Asian markets were negatively impacted by the stalling of the Chinese real estate sector.
Losses in emerging market Europe, Middle East & Africa (EMEA) were led by South Africa, Qatar, and Poland. Egypt, Hungary, and Turkey were the only markets to make gains, with the later boosted off the back of positive sector performances across the board.
Bond markets continued to have a difficult time in August. The realisation that interest rates are likely to be higher for longer led to a sell-off early in the month. Some of these losses were recovered later in the month as hopes of a more moderate economic slowdown grew.
European economic data in Europe was tempered as business activity declined more than expected in August. Though growing concerns over the near-term economic outlook provided a boost to government bonds, with German bunds returning positively. UK gilts in contrast, returned losses, due to expectations of a further interest rate hike in September.
It was a mixed month for corporate bonds. Investment grade bonds, which are more sensitive to interest rate movements, underperformed high yield bonds. US investment grade bonds were the worst performing, with sterling-denominated high-grade bonds also losing ground.
Monthly Market Roundup cov. August 2023
In our monthly market roundup for August, Invesco experts give a rundown on a largely negative month for global stock markets, as well as a view the state of bond markets.
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