The week in review

In a review of the week of 26 July, some economies showed signs of recovery but emerging markets remain hindered by the continued spread of the COVID-19 Delta variant, the speed of their vaccine rollouts and China’s regulatory crackdown.
Published 2 August
5 mins

What’s happened in markets?

FTSE All Share0.160.531.8011.6526.611.805.75
Euro Stoxx 50-0.480.754.0317.4731.998.219.85
S&P 500-0.352.385.5017.9836.4318.1417.31
Japan Topix-0.17-
MSCI Asia Pac.-3.22-7.47-6.41-1.5519.369.3211.95
MSCI Emerg. Mkts.-2.49-6.69-4.310.2820.978.2810.73
Jo’burg All Shares1.334.183.2417.9427.139.778.84
UK Gov’t Bonds0.242.773.96-3.05-
US Gov’t Bonds0.271.362.36-1.25-
Global Corp. Bonds0.291.272.940.372.347.014.65
Emerg. Mkt. Local0.73-0.210.86-3.633.074.163.29

Figures in the respective local currencies as at the end of trading on 31/7/2021.

The Federal Reserve (Fed) decided to keep monetary policy unchanged at its meeting on Wednesday 28 July. It reiterated that it sees inflation increases as largely transitionary and there were signs that the economy was improving, but Fed Chair Jerome Powell’s recent comments suggest there is some way to go before the Fed starts tapering its support for the US economy, currently at a rate of US$120 billion a month. Although the topic was discussed, the committee is looking for a stronger recovery in the labour market and more job increases.
The pandemic remains an important factor for the US economy amid reports of the uptick in COVID-19 new cases and hospitalisations. This prompted the US president, Joe Biden, to announce a series of measures to combat the spread of the Delta variant, including a call for states to follow New York’s example in offering US$100 cash to encourage vaccine uptake.
Meanwhile, there was good news on the data front with gross domestic product (GDP) growing +1.6% over the second quarter. Although this was lower than expected, it has taken the US economy above its pre-pandemic peak and puts the country ahead of its peers in that respect.
In the Eurozone, there was an even sharper rebound in the GDP figures, up +2% and higher than the +1.5% growth expected. But the economy remains smaller than before the pandemic due to the more conservative approach EU governments are taking in dealing with COVID-19 variants and the reopening of economies. Notably, now the vaccination levels are improving, the momentum could be with the Eurozone, which would prompt another strong GDP figure in Q3.
Emerging markets, however, continue to remain hampered by the spread of the COVID-19 Delta variant and their much lower vaccination levels, such as in Asia which are below 10%. Markets were also spooked by the recent regulatory reforms in China. The latest development in the world’s second largest economy was a ban on private education companies making a profit. While some see these reforms as a move away from capitalism, others attribute these to China’s recent five-year plan, which seeks to put pressure on parts of the economy that have done well and where prices have risen substantially, particularly in education and real estate. The government may also be looking to increase its control, particularly within the tech sector where large monopolistic tech companies are also pushing up prices.
Authorities may also have an eye on China’s ageing population as it actively encourages people to have more children.
Corporate earnings for Q2 have been strong across all sectors, with 200 companies having reported so far. Strong earnings were seen from Alphabet, Microsoft and Apple. And although Amazon disappointed, despite posting US$113 billion in sales, the news suggested consumers may be returning to in-store shopping, another possible sign of economies reopening.
In markets, over the past 30 days, there was a sharp drop in emerging markets (-7%), which again underperformed developed markets (+2%) as investors remain concerned about the regions’ prospects. Style-wise, not much has changed as growth stocks (+1%) retained a narrow lead over value (0%) during the same 30-day period. This was reflected in the sector breakdown as defensive/stay-at-home stocks outperformed cyclicals, although most sectors posted positive numbers, apart from financials (-1%), consumer discretionary (-2%) and energy (-6%). Large capitalisation stocks rose +1% over the past 30 days versus the -1% drop for small capitalisation stocks.



UK GDP (QoQ)-1.6
UK PMI58.058.0
UK CPI (YoY)2.5
EU GDP (QoQ)2.0
EU PMI61.061.0
EU CPI (YoY)2.2
US GDP (QoQ)6.5
US PMI60.060.5
US CPI (YoY)5.45.3

What’s happened in portfolios?

This week we wanted to focus on the alternative strategies space following the addition to our multi-asset strategies of an investment trust specialising in private equity, i.e. companies that are not publically traded. This is because we have previously chosen not to invest in private equity, but believe that now is the right time given:
  1. Returns have remained consistent, have increased steadily over the past five years and the economic backdrop is supportive of future performance
  2. It supports diversification as the asset class has tended to perform differently to existing types of investment that provide capital growth
  3. There is also a strong relative valuation argument given equities are at all-time highs and bond yields are at all-time lows meaning traditional asset class valuations are quite stretched.
As with other alternative strategies investments, we have chosen to invest through a closed ended investment trust as these provide liquidity that is not available with direct private equity investments. Oakley Capital Investments invests in a series of Oakley vehicles, which consist of high-quality, privately listed companies across Western Europe, with a little exposure to the US. The management team specialises in three sectors – technology, consumer and education – with a focus on digital business models that have recurring (subscription-based) revenue streams.
The first Oakley fund was set up in 2007 to encourage and fund entrepreneurship. It’s this entrepreneurial heritage that sets Oakley apart. It attracts like-minded businesses and builds strong partnerships with their management teams, investing their time and experience – as well as the company’s own capital – to help the selected businesses grow and succeed.
This heritage also allows Oakley to attract new investment options and approximately 75% of its deals are understood to be uncontested, which means they provide better value given there are no bidding wars prompted by rival would-be investors.
We believe private equity markets are well placed to benefit from the current economic environment, which should be one of growth. However, there are risks given the nature of the underlying small companies. Oakley seeks to mitigate these through its thematic approach to selecting companies that will benefit from the economic trends, but that have a digital/subscription model in place to provide for growth more consistently across the full economic cycle.

What's happening this week?

4 Aug • EU & UK Markit PMIs | 5 Aug • BoE Interest Rate Decision | 6 Aug • US Nonfarm Payrolls

Clients of Nedbank Private Wealth can get in touch with their private banker directly to understand how their portfolios are responding to market events, or call +44 (0)1624 645000 to speak to our client services team.


If you would like to find out more about how we manage clients’ investments, please contact us on the same number as above. Or you can get in touch using the links to the forms towards the end of this page.

Sources: Nedbank Private Wealth and (1) Bloomberg; and (2) Reuters.

The value of investments can fall, as well as rise, and you might not get back the original amount invested. Exchange rate changes affect the value of investments. Past performance is not necessarily a guide to future returns. Any individual investment or security mentioned may be included in clients’ portfolios and is referenced for illustrative purposes only, not as a recommendation, not least as it may not be suitable. You should always seek professional advice before making any investment decisions.

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