July, 2023
Cooling inflation and positive signals from China set the tone for global equity markets in July. US inflation fell to its lowest level since March 2021, with the US dollar also softening, indicating growing success for the Federal Reserve’s interest rate policy. US equities advanced amid improving sentiment. However, core inflation declined more modestly, keeping expectations of further interest rate hikes on the table. In Europe, inflation also decelerated – albeit from higher levels – helping feed similar stock market gains. While inflation edged back under control in Europe, concerns remained around an approaching recession.
Emerging markets outperformed, driven by China. Stocks jumped, led by property and technology, after the authorities pledged measures to boost employment and give more support to the struggling real estate sector. The National Development and Reform Commission of the People’s Republic of China signposted its desire to attract more private investment into fields like clean energy and infrastructure. Further reassurance came from news that any US limits on investment in China would be narrowly focused on cutting edge technology, including AI and quantum computing.
Elsewhere in emerging markets, Indian stocks continued to push higher, driven by strong net investment inflows.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/fs_OP_MMF0108AU-6.pdfJune, 2023
Global equities advanced in June, with US equities driving returns. The NASDAQ closed out the first half with its strongest result in 40 years and AI fueled investor excitement. Another boost came from improving inflation indicators that added to hopes the Federal Reserve could be near the end of its rate-hiking cycle.
However, despite a pause in interest rate rises in June, the Fed struck a more hawkish tone than investor expectations, guiding to two further rate rises this year. The European Central Bank took an equally hard line as it cautioned against persistent core inflation as rising wages become an increasingly important contributor to price increases. Geopolitical tensions eased somewhat as the US Secretary of State’s visit to Beijing resulted in agreement to stabilize strained relations between the US and China. Economic data provided another source of uncertainty about China for international investors – manufactured weakened for the third successive month in June, while some consumer spending indicators remained below pre pandemic levels. Faced with the threat of a slowing economy, Chinese policymakers deployed stimulus that included a cut to benchmark lending rates and tax breaks for business.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/fs_OP_MMF0108AU-5.pdfApril, 2023
Global equities finished marginally higher in April as gains in Europe and the US were offset by weakness in emerging markets. In the US, expectation-beating results from big tech groups drove gains; however, conflicting macro data also persisted, weighing on investors and consumers. Despite falling inflation, US growth slowed to an annualized rate of 1.1% in the first quarter, below forecasts, and the US Conference Board’s measure of consumer confidence dipped to a nine-month low, adding to indictors of a potential downturn. European equities outperformed with Hermes and LVMH reporting strong sales. At the same time, the continent’s macro outlook remained weak, as Eurozone first quarter GDP undershot expectations. China weighed down emerging markets performance as stocks weakened on geopolitical concerns, despite improving company and economic performance following the reopening. China’s economy grew by 4.5% in the first quarter, beating expectations, although companies gave a cautious view with JD.com warning that a full consumer recovery could take time. In the meantime, China’s Politburo signaled that it was too soon to tighten monetary policy, which gave Chinese stocks an end-of-month boost.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/fs_OP_MMF0108AU-4.pdfFebruary, 2023
Most major equity markets weakened in February as mixed data renewed concerns about the trajectory for inflation and interest rates. However, European equities made modest gains in euro terms, bucking the downward trend. The European Commission projected that the EU would narrowly avoid recession as falling natural gas prices began to take the pressure off consumers and businesses. Nevertheless, inflation data from France and Spain towards the end of the month reignited concerns that the European Central Bank would need to continue aggressive interest rate rises. US equities gave up some of January’s gains, as economic data fed expectations that interest rates would move higher and remain elevated for longer than previously forecast. Renewed dollar strength raised pressure on emerging markets, and investors took a pause on China after a prior strong run for stocks. However, there was positive economic data as Chinese factory PMIs hit their highest level in more than a decade in February, signaling that the country was shaking off the effects of recent COVID outbreaks and the end of its strict zero-COVID stance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/fs_OP_MMF0108AU-3.pdfDecember, 2022
Central banks around the world continued to battle inflation with the persistent hiking of interest rates in the fourth quarter. However, November data, particularly in the US, EU and UK, indicated a lower year-over-year inflation rate as energy prices fell from highs seen at the end of the second quarter. Hopes of an end to the Federal Reserve’s tightening cycle boosted US equities early in the quarter, with consumer price inflation softening to 7.1% in November.
However, Fed Chair Jerome Powell warned that policymakers still had “more ground to cover” in the fight against inflation, dampening the mood in markets in December. Recession fears also intensified, and the US dollar, which had been a pillar of strength the past few years, retreated 8.5%. European Central Bank President Christine Lagarde cautioned that interest rates may need to be increased to levels that would restrict economic growth. In the UK, budget cuts and tax rises under new Prime Minister Rishi Sunak helped stabilize the sterling but did not alleviate pressure on the economy.
The Bank of England hiked interest rates again in December, while UK growth was revised down to -0.3% in the third quarter with recession forecast to last until the end of 2023. There were some positive signals as mild fall weather reduced the drain on European natural gas reserves through October and November, and forecasts for above-average temperatures in Northern Europe into 2023 further relieved pressure on natural gas prices.
China ended the year on a strong note with optimism for the economy. In December, China abandoned many elements of its zero-COVID policy following public protests, releasing a rally in share prices and pent-up demand for tourism. At the same time, COVID cases spiked sharply, leading some countries to introduce renewed checks on visitors from China.
The rise in infections also prompted concerns about the impact on global supply chains. Indian equities benefited from the continued shift in supply chains away from China and the country’s expanding middle class consumer base. The World Bank upgraded its fiscal year 2023 GDP growth forecast for the country to 6.9%, expecting it to remain one of the fastest growing major economies in the world.
Indonesia’s economy also continued to perform strongly, registering 5.7 year-onyear growth in the third quarter, buoyed by investment and consumer spending. In Latin America, Brazilian markets were volatile following the victory of the leftwing’s Luiz Inacio Lula da Silva in presidential elections, with budget cap changes prompting concerns about looser fiscal discipline.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/fs_OP_MMF0108AU-2.pdfOctober, 2022
Global stocks continued to sell-off in September as signals of further aggressive tightening and concerns about recession weighed on the markets. The Federal Reserve led the way with another 75bps hike in interest rates following a sharp increase in consumer prices in August. Inflation also spiked across Europe, reaching a near seven-decade high in Germany, with the European Central Bank shifting its focus from protecting economic growth to combatting price rises. The new UK cabinet led by Prime Minister Liz Truss provoked further market volatility with a badly received fiscal package that prompted emergency measures from the Bank of England. Despite rising recession concerns, European equities outperformed relative to other major markets in part due to energy, commodities, and financial services. Emerging markets equities were the worst relative performers, as declines in Chinese shares dragged on performance. Despite promises of further stimulus, Beijing’s zero-COVID policy and softening global demand hit exports, while other tech-focused exporting nations including Taiwan and South Korea witnessed weak semiconductor sales. In contrast, India was a relative bright spot and Brazil upgraded its growth outlook for the year. The Fund seeks to benefit from structural growth opportunities, with acceptable risk levels. The binding element across our portfolio holdings is that we believe they can grow at attractive rates even in a slower economic growth environment. We think defensive growth, which can provide us with good downside protection, combined with secular growth, which allows us to participate in up markets, is the formula that’s required to navigate these challenging markets and to aim to beat the benchmark with lower volatility.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/fs_OP_MMF0108AU-1.pdfSeptember, 2022
Global stocks continued to sell-off in September as signals of further aggressive tightening and concerns about recession weighed on the markets. The Federal Reserve led the way with another 75bps hike in interest rates following a sharp increase in consumer prices in August. Inflation also spiked across Europe, reaching a near seven-decade high in Germany, with the European Central Bank shifting its focus from protecting economic growth to combatting price rises. The new UK cabinet led by Prime Minister Liz Truss provoked further market volatility with a badly received fiscal package that prompted emergency measures from the Bank of England. Despite rising recession concerns, European equities outperformed relative to other major markets in part due to energy, commodities, and financial services. Emerging markets equities were the worst relative performers, as declines in Chinese shares dragged on performance. Despite promises of further stimulus, Beijing’s zero-COVID policy and softening global demand hit exports, while other tech-focused exporting nations including Taiwan and South Korea witnessed weak semiconductor sales. In contrast, India was a relative bright spot and Brazil upgraded its growth outlook for the year.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/fs_OP_MMF0108AU.pdfAugust, 2022
Global equities declined as renewed concerns about rising interest rates and energy shortages weighed on developed market stocks. Data showed that US inflation moderated in July, prompting hopes that price rises had peaked. However, at the central bankers’ meeting in Jackson Hole, Federal Reserve Chair Jerome Powell pledged to continue tightening, despite the risk of pain for households and businesses. US equities reversed earlier gains and underperformed for the month. European equities fell more steeply as European Central Bank policymakers signaled sharper interest rate rises.
Eurozone GDP growth remained resilient in the second quarter, but rising prices continued to fuel recession fears. Emerging market equities finished slightly positive for August, fed by gains for Latin American markets benefiting from commodity price strength. In China, a drought impacted factory operations and the country’s deepening property crisis weighed on economists’ growth expectations. Renewed lockdowns in cities including Shenzhen and Dalian added to market concerns.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/192180201.pdfJuly, 2021
Global equities posted moderate gains in June as concerns about sharp interest rate rises in the face of inflation and economic growth eased. In the US, Federal Reserve chair Jerome Powell sought to temper tapering fears with expectations of easing inflation and a cautious approach to tightening. Inflation worries also hit Europe although the European Central Bank prolonged its bond-buying program and left its ultra-low interest rates unchanged.
The decline in COVID-19 cases in most countries in the region prompted reopening measures and travel loosening ahead of summer vacations, with European equities outperforming the global benchmark. Emerging markets and Asia Pacific equities both lagged. Regulatory concerns continued to dampen Chinese tech stocks that make up a significant weighting in the EM benchmark. Indian shares edged up in June, although lost some momentum as economists questioned the efficacy of government loan guarantees and saw the potential for rising COVID cases elsewhere in Asia to dent recovery hopes.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/180198293.pdfMay, 2022
Global equity markets declined in the first quarter as the war in Ukraine fed into market concerns about geopolitical risks and energy supply. Investors also worried about spiking inflation and rising interest rates. The pullback started in early January as US CPI hit a four-decade high of 7%. Supply side drivers of inflation also intensified following Russia’s aggression against Ukraine, as oil spiked to its highest level since the financial crisis. The US announced that it was considering releasing reserves and the supply of oil and gas by Russia was not materially impacted, which sent the oil price lower. Still, global benchmark Brent Crude finished the quarter significantly higher. Federal Reserve Chair Jerome Powell implemented a 0.25% interest rate rise in March and guided to a return to a more “neutral” level, feeding expectations of a series of larger rate hikes. Higher commodity costs, as well as logistical supply challenges, weighed heavily on Europe. Natural gas prices climbed by over 50% as the region wrestled with its dependency on Russia. As countries enacted sanctions, Germany halted certification of the Nordstream 2 gas pipeline. European oil and gas majors also had to contend with Russian exposure.
Chinese authorities continued regulatory measures in the first quarter with new rules targeting tech companies, although some commentators pointed to a softening approach as Beijing looked to defend economic growth. The country’s zero-tolerance approach to COVID also came under scrutiny as it attempted to implement partial lockdowns in its economic hub Shanghai, and PMI readings slipped back. The US Securities and Exchange Commission identified Chinese ADRs that could be delisted from New York for not meeting auditing requirements, leading to selloffs. The MSCI China was one of the weakest country performers, dragging back Asia Pacific and Emerging Markets indices’ performance
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/189243047.pdfApril, 2022
Global equity markets declined in the first quarter as the war in Ukraine fed into market concerns about geopolitical risks and energy supply. Investors also worried about spiking inflation and rising interest rates.
The pullback started in early January as US CPI hit a four-decade high of 7%. Supply side drivers of inflation also intensified following Russia’s aggression against Ukraine, as oil spiked to its highest level since the financial crisis. The US announced that it was considering releasing reserves and the supply of oil and gas by Russia was not materially impacted, which sent the oil price lower. Still, global benchmark Brent Crude finished the quarter significantly higher. Federal Reserve Chair Jerome Powell implemented a 0.25% interest rate rise in March and guided to a return to a more “neutral” level, feeding expectations of a series of larger rate hikes.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/188177181.pdfDecember, 2020
Global equities gained strongly in the fourth quarter as positive news on vaccine development pushed many markets to new highs. Returns were broad-based as all sectors in the MSCI All Country World Index (ACWI) generated positive performance for the quarter. Concerns about a contested US election led to increased volatility early in the fourth quarter and were realized when the incumbent administration challenged Joe Biden’s victory through the courts. As those lawsuits were rejected, investor focus switched to Senate run-off votes, which will influence the scope of potential regulation and tax increases. Democrats and Republicans clashed over the proposed fiscal stimulus measures, finally agreeing to a $900 billion package. After signaling his intention to veto the deal, President Trump signed the COVID relief bill and federal funding package, boosting US equities at the end of December.
Emerging market equities also advanced during the quarter. Outflows from emerging market equity funds at the start of the pandemic reversed later in the year. Joe Biden’s win in the US presidential election helped push Chinese shares higher as investors bet on a less confrontational stance between the two countries, while the economy benefited from the containment of the virus. Chinese GDP growth hit 4.9% in the third quarter, albeit slightly below expectations, and measures such as retail sales and factory output continued to improve.
The MSCI China Index returned 11.20% for the quarter and 29.49% for the year. The recovery story extended to other major emerging markets as India’s economy performed better than expected in the three months through September. Additionally, the market has become less concerned with credit quality issues in Indian banks.
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ticker: MMF0108AU
release_schedule: Monthly
structure: Managed Fund
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OnePath OA IP-OP Global Share EF aims to achieve returns (after costs but before fees and taxes) that exceed the MSCI World (excluding Australia) Net Total Return Index (unhedged and in AUD with net dividends reinvested), over periods of three years. The fund invests predominantly in a diversified portfolio of international shares selected in accordance with a disciplined investment process.