August global commentary: US equities once again lead from the front

Developed market (DM) equities delivered yet another positive return (MSCI World +2.5% MoM) for the seventh-consecutive month. US equities were again leading from the front (S&P 500 +3% MoM and now +21.6% YTD). The month started well with better-than-expected US payroll data resulting in US 10-year bond yields spiking and driving the S&P 500 financial sector (+5.1% MoM) higher on the prospect of higher net interest margins for banks. A mid-month release of weaker-than-expected US retail sales and waning consumer sentiment data then spooked markets just as the COVID-19 Delta variant was causing another spike in infections, with new daily infections in the US reaching levels similar to those seen in the previous wave (before meaningful vaccine rollouts). Concerns around the impact of the resurging COVID-19 infections on mobility weighed on the price of Brent crude oil (-4% MoM), resulting in the S&P 500 energy sector (-2% MoM) being the only sector to end the month lower.

Markets though were buoyed into month-end by signals from the US Federal (Fed) Open Market Committee (FOMC) – initially by the release of Fed minutes and later by Fed chair, Jerome Powell’s comments at the annual Jackson Hole Economic Symposium for central bankers – that there was limited agreement amongst Fed members about the timing of tapering for bond purchases under the current quantitative easing (QE) programme. More importantly, Powell noted that the decision to hike interest rates was in no way connected to the start of tapering, with interest rate hikes very much dependant on the path of US labour markets, which are still a long way from their pre-pandemic level. The resurgent COVID-19 infections meant the so-called “pandemic beneficiaries” were amongst the best-performing stocks in August with the FAANG (Facebook, Apple, Amazon, Netflix and Google’s parent company, Alphabet) stocks up c. 6% in aggregate for August.

The rollout of regulations aimed at implementing the latest five-year plan in China continued to weigh on Chinese stocks, though predominantly those with primary listings outside the mainland. The Nasdaq Golden Dragon Index (-1.6% MoM) of US-listed Chinese companies and the Hang Seng China Enterprises Index (-0.3% MoM) of Hong Kong-listed Chinese companies continued to suffer due to the uncertainty around the impact of the shifting Chinese regulatory landscape. Chinese stocks, along with Brazilian equities (where a sharply weaker iron ore price weighed on the miners), were the emerging market (EM) underperformers, but a stellar performance by the Indian bourse (Nifty 50 Index +8.7% MoM) and a strong month for Russian equities (MSCI Russia +3.6% MoM) helped push the EM benchmark (MSCI EM +2.6% MoM) slightly ahead of its DM peers. Indian stocks were buoyed by strong retail investor demand as economic data showed that the economy was much less impacted by the severity of the most recent COVID-19 wave than expected.



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