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June’s investment market commentary

Financial markets remained volatile in June and riskier assets began to recover from the appalling first quarter falls, as Andrew Yeadon’s update explains.
Published 7 July
3 mins

While financial markets remained volatile, June saw risk assets climbing a wall of worry as financial markets further recovered from the appalling first quarter drawdown. Off a low base, economic activity picked up as restrictions were eased and the growth rate of COVID-19 cases slowed. 

Investors continued to take comfort from the remarkable levels of stimulus governments and central banks are providing across the world, although towards the end of the month there were worrying signs that the pandemic was accelerating again, most notably in the US Sun Belt states.

On the political front, tensions between China and most other countries (which were already frayed by COVID-19), increased as China imposed draconian anti-sedition laws on Hong Kong Special Administrative Region that many believe effectively ends the “one country / two systems” arrangement put in place when the UK handed Hong Kong to China in 1997. In response, the UK invited up to three million Hong Kong holders of UK overseas passports to come to Britain, while the US suspended Hong Kong’s special trading status and imposed sanctions.

 

With the race for the presidency now in its final few months, Trump’s poor handling of both the pandemic and racial protests has seen his approval ratings slump, and Democrat nominee Biden to take a meaningful lead in the polls. How Trump reacts to this shift remains to be seen. While a Biden victory would probably help ease global political tensions, he would also seek to reverse some of Trump’s tax cuts and deregulation, which would be less investor friendly.

Corporate news flow was relatively quiet ahead of the July second quarter reporting season. In Germany, the Wirecard fraud was the biggest in the country’s history, causing significant losses for shareholders. Elsewhere, an increasing number of large companies announced restructuring plans involving significant redundancies as fiscal support programs and furlough schemes near their target end dates. Many companies also continued to raise capital and reduce dividends in order to maintain sufficient liquidity.

 

Equities continued their recovery, with most major markets and sectors delivering gains. Over the month, the MSCI AC World Index rose +2.7% in sterling terms. At the country and regional level, Asia ex Japan (+7.8%) and Emerging Markets (+6.8%) led, while the US (+1.7%) and the UK (+0.9%) underperformed. At the sector level, information technology (+7.0%) and consumer discretionary (+4.8%) were the best performers, with healthcare (-1.2%) and utilities (-1.6%) the weakest. From a style perspective, investors continued to back growth (+4.6%) more strongly than value (+0.8%). The performance of smaller company stocks (+2.7%) broadly matched their larger company peers (+2.7%).

Fixed income also saw positive returns with sovereign bond yields generally drifting lower. Central bank support continued to encourage some investors to return to higher yielding assets, with riskier types of bonds seeing the strongest returns. Over June, the JP Morgan Global Government Bond Index delivered a return of +0.2%, while shrinking spreads saw the ICE Merrill Lynch Global Corporate Investment Grade and High Yield Bond Indices gain +1.8% and +1.7% respectively (all hedged to sterling).

 

Most commodities gained as the Bloomberg Commodities Index rose +1.8% on the month. The largest advances were in crude oil (+8.1%) and industrial metals (+6.3%) as hopes of economic recovery helped claw back some of the significant losses seen earlier in the year. Nonetheless, commodities sent mixed messages as more cautious investors took comfort in buying gold (+2.3%), either as a hedge or safe haven.

Foreign exchange markets were relatively quiet, with the Yen, Euro, Sterling and the US Dollar all fairly stable against each other. Currencies that weakened included some of the traditional safe haven currencies, such as the Swiss Franc, while an improvement in demand and pricing for commodities helped boost the Canadian and Australian Dollars.

 

(Notes: All monthly data is quoted in sterling terms unless otherwise stated).

INDEXLAST MONTH’S VALUETHIS MONTH’S VALUE
FTSE 1006076.66169.74
DJ Ind Average25383.1125812.88
S&P Comp3044.313100.29
9009555.52410156.85
Nikkei21877.8922288.14
£/$1.23431.2401
€/£0.899480.90588
€/$1.11011.1234
£ Base Rate0.100.10
Brent Crude37.8441.27
Gold1730.271780.96

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

 

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

Investments can go down, as well as up, to the extent that you might get back less than the total you originally invested. Exchange rates also impact the value of your investments. Past performance is no guide to future returns. Any individual investment or security mentioned here may not be suitable, and is included for information only and is not a recommendation. You should always seek professional advice before making any investment decisions.

Access more of our insights

Investing

Quarter end investment webinar: the outlook for global growth

30 Jun

   |   45 mins

Against a challenging background of heightened geopolitical tensions, soaring inflation and rising interest rates, David McFadzean and Tom Caddick assess the outlook for global growth and financial markets.

Investing

Webinar: sense and sustainability: making sense of sustainable investing

22 Jun

   |   45 mins

Faced with an explosion of sustainable investment options, David McFadzean and Tom Caddick discuss the growth in sustainable investing and how you can make sense of the jargon and the array of choices available.

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The week in review

21 Jun

   |   4½ mins

The week of 13 June saw global stocks suffer their worst fall since the start of the pandemic, as investors reacted to further interest rate rises from central banks and fears of an economic slowdown.

Investing

The week in review

14 Jun

   |   4½ mins

The week of 6 June saw the release of higher than expected inflation figures in the US, prompting increased expectations of more aggressive interest rate hikes from the Federal Reserve.

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