Monthly Comment - July 2023

July 2023

A positive trend was seen in the global stock market in July, with emerging
markets surprisingly outpacing their developed counterparts. There was a robust
performance from small-scale companies, supported by a drop in inflation in
multiple developed economies, including the United States. A similar upbeat
trajectory was noticed with corporate bonds, which surpassed government bonds
in the same period.

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U.S. equities progressed positively in July, guided by encouraging economic data
signifying strong growth and a decline in inflation rates. The Federal Reserve (Fed)
responded by introducing a quarter percentage point rate hike in July. Although
there were uncertainties surrounding future rate hikes in September, prevailing
sentiment hints at this being the final increase in this cycle. A prevailing optimism
is that the Fed might have successfully managed a "soft landing," cooling growth
and managing inflation without inducing a recession.
Inflation, gauged by the Consumer Price Index (CPI), saw a rise of 0.2% in June,
following a modest 0.1% increase in May. The rise was lesser than anticipated,
taking the annual rate down to 3.0%. Meanwhile, the U.S. economy demonstrated
resilience with a 2.4% expansion in the second quarter, surpassing economists'
growth forecasts of 1.8%. Energy stocks advanced on the back of expectations of
tighter supply and favorable growth data, while banking stocks, certain media, and
technology giants also made impressive gains.

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Eurozone shares also experienced growth in July, propelled by decreasing
inflation and uplifting economic growth data. The most significant sector gains
were recorded in real estate, energy, and materials, with consumer staples,
information technology, and utilities lagging behind. The European Central Bank
responded by increasing interest rates by 25 basis points in July. Despite this,
investors foresee the central bank nearing the end of its rate-hiking cycle as
inflationary pressures wane.
The UK equity market also saw a positive trajectory, led by a shift in investor
expectations on aggressive rate hikes from the Bank of England. The shift was
triggered by the revelation of a sharp decrease in headline inflation in June to
7.9% by the Office for National Statistics.

Subsequently, this led to a bounce back in several domestically focused market
sectors such as housebuilders and the real estate sector.
Despite a tempered outlook, international areas of the UK market, including basic
materials and energy sectors, recovered in tandem with commodity prices.
Meanwhile, industrials also performed well, signaling an improving outlook for the
global economy.
In Japan, the equity market continued its gradual ascent in July with the TOPIX
Total Return index up by 1.5%. The market was guided by mid and small-cap
stocks, leading to a slightly lower return from the Nikkei 225. The Bank of Japan
introduced minor adjustments to the yield curve control policy, with limited impact
on the equity market.

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Emerging markets exhibited a rally in July, surpassing developed markets due to
supportive economic gestures by Chinese authorities towards the real estate
sector. China performed exceptionally well, thanks to strong economic data and
the announcement of economic stimulus, even if somewhat limited.
In July 2023, the performance of riskier assets remained strong, while government
bonds underperformed. The US and European Central Banks raised rates by
0.25% each, assuring a data-dependent approach to future guidance. A downward
trend was noticed in yields for short-term government bonds, signaling a potential
slowdown in central banks' interest rate hikes.
In currencies, the US dollar was weaker against its G10 peers. In contrast, the
S&P GSCI Index recorded a positive performance in July, with energy being the
best-performing component. In the agriculture sector, strong price gains were
noticed for sugar, cocoa, coffee, and cotton.
Overall, despite a mixed global economic outlook, the month of July saw solid
performances in many sectors, especially in emerging markets, driven by positive
economic data and supportive policy measures from central banks.