What’s happened in markets?

FTSE All Share -1.30 4.51 2.99 13.80 25.56 2.88 5.54
Euro Stoxx 50 -1.94 4.88 4.08 19.16 29.75 10.09 10.32
S&P 500 -0.55 2.88 7.17 19.35 33.18 17.95 17.43
Japan Topix -3.87 -0.43 -0.67 5.39 20.16 6.04 10.19
MSCI Asia Pac. -4.58 -7.60 -8.48 -5.94 13.02 8.86 10.10
MSCI Emerg. Mkts. -4.62 -6.63 -7.25 -4.04 15.48 8.46 8.83
Jo’burg All Shares -4.46 0.95 0.47 13.42 22.25 8.48 7.95
UK Gov’t Bonds 0.37 0.63 5.09 -2.48 -1.35 3.99 1.96
US Gov’t Bonds 0.30 -0.05 2.42 -1.25 -2.22 4.97 2.48
Global Corp. Bonds 0.17 0.08 2.89 0.25 2.70 6.71 4.59
Emerg. Mkt. Local -1.08 -0.98 -2.07 -5.51 2.01 4.86 2.42

Figures in the respective local currencies as at the end of trading on 20/8/2021.

The week of 16 August saw investors unhappy with the turn of events, which led to a ‘risk off’ week as buyers favoured lower risk investments. This disappointment started with the US retail sales numbers for July, which saw a 1.1% fall versus the predicted drop of 0.3% and which are important numbers since the country’s consumers make up almost 70% of local economic activity.

Investors were further concerned by rising COVID-19 cases – infection rates that have now climbed for eight consecutive weeks. And although these cases haven’t led to the same levels of hospitalisations and deaths, the low levels of vaccinations in some markets may mean a return to more lockdowns, such we have seen in key cities in Australia. The rising case numbers in Japan helped push the Nikkei to its lowest level in 2021 so far.

In other news stemming from the US, the Federal Reserve released its latest meeting minutes, which highlighted that its monetary committee expects to see a start to tapering later in 2021 if economic data continues to point to strong growth. The report also highlighted, however, that a cessation in tapering would not automatically mean higher interest rates and that these two measures in the central bankers’ toolkit will be tabled separately for decisions.

Other negative news around the world was also noted in China, where the regulatory crackdown on technology was extended from education to a ride hailing app as part of the broad campaign by the Chinese Communist party to limit activity by its tech giants that it deems to be damaging to national security and social stability, ahead of the revision of the country’s anti-monopolistic legislation later this year. The negative news flow also saw its retail sales and industrial production numbers undershoot estimates.

This fed into emerging market index performance as China forms a large component of these benchmarks at a time when the other markets continue to struggle from the repercussions due to the COVIC-19 pandemic.

It was only the UK that fared better in terms of data as its unemployment numbers came in at 4.7%, a better than expected percentage, and as the consumer price index published for July came in lower than the 2.3% anticipated, which, at 2.0%, aligns with the Bank of England’s own targets.

In terms of equity markets’ performance, emerging markets (-7%) continued to trade negatively when viewed over the last 30 days, while the returns of developed markets remained constant (+2%). Value stocks (+1%) outperformed its growth (0%) counterparts and large capitalisation stocks (+1%) performed better than small capitalisation stocks (-1%). Utilities (+6%), healthcare (+4%) and financial services (+3%) led the sector performance statistics, while poor oil prices flowed through to the broader energy sector (-4%).

In fixed income, the risk off environment meant that US treasuries outperformed, while lower quality corporate and high yield bonds struggled.

On the currency front, the US Dollar and Japanese Yen performed well as both are seen as safe havens. Oil prices saw their worst week in 2021 as the threat of the pandemic on future economic growth and subsequent demand for the liquid gold hung over investors.

Latest Consensus Forecast
UK GDP (QoQ) 4.80
UK PMI 55.30 58.70
UK CPI (YoY) 2.00
EU GDP (QoQ) 2.00
EU PMI 59.50 59.60
EU CPI (YoY) 2.20
US GDP (QoQ) 6.50 6.70
US PMI 64.10 62.50
US CPI (YoY) 5.40

What’s happened in portfolios?

With the week of 16 August being ‘risk off’, our equities and fixed income holdings in portfolios performed in line with markets. Against this backdrop, the team sought to broaden our diversification among fund managers still further with another infrastructure investment in the Atlas Global Infrastructure Fund. It takes a different approach to many real asset funds in that the team is not made up of equity investors that research infrastructure, but rather are infrastructure specialists making investments through listed companies.

Concentrating on value and sustainability picks, we believe the fund is an ideal candidate for a long term position in the asset class due to the management team’s credentials and since the firm is backed by Global Infrastructure Partners (GIP) – one of the most successful and experienced private market infrastructure investors in the world, with over US$75 billion assets under management.

As Atlas benefits from the stability this partnership offers, as well as the industry expertise of the GIP team, it also supports the long-term prospects for investors, not least as there is the capability for the team to expand its current remit from developed market investments to start to review emerging market opportunities as the transparency, governance and liquidity issues, and the uncertainty associated with regulatory environments, linked to these regions are incrementally rectified.

In addition, the investment supports portfolio liquidity given your money is invested across more funds. The resultant smaller levels of capital per fund means it is more unlikely that we would see issues divesting when we choose to sell.

What’s happening this week?

26 Aug • UK YoY Car Production | 26 Aug • ECB Monetary Policy Meeting Minutes | 27 Aug • US Jackson Hole Economic Symposium