The Global equity markets going into mid-year
Global equity markets rallied strongly into mid-year (MSCI World +6.1% MoM/+15.4% YTD) with the threat of a US government debt default safely avoided and a pause in rate hikes from the US Federal Reserve ([Fed], after ten consecutive rate hikes) buoying equity markets. Mega-cap, US-listed tech stocks remain a key driver of equity market returns (benefitting from the hype surrounding artificial intelligence [AI]) as the NYSE FANG Index (+8% MoM) ended 1H23 74% higher, with the share prices of Nvidia, Meta and Tesla more than doubling YTD (+190%, +138% and +113% YTD, respectively) and impressive gains from Amazon, Apple, Microsoft and Alphabet (+55%, +50%, +43% and +36% YTD, respectively).
Emerging markets (EMs) have lagged developed markets (DMs) YTD, with foreign-listed Chinese companies the biggest laggards in the face of a disappointing rebound in Chinese economic activity. Still, these companies did enough in June (US and Hong Kong-listed Chinese companies were up 9.5% and 5.2% MoM, respectively) to keep EMs in positive territory YTD (MSCI EM +3.8% MoM and +5% YTD). Brazil has been the standout performer among EMs in 2023, with the local bourse up 16% MoM in US dollar terms for June. Its performance was supported by a currency tailwind as the Brazilian real maintained its strength against the US dollar (+5.6% MoM/+10.4% YTD).
The markets largely expected the Fed’s pause in rate hikes, but Fed Chair Jerome Powell signalled that rate hikes would likely resume at the Fed’s next meeting and that most Fed members anticipate at least two more rate hikes this year. This is at odds with investor expectations for one more rate hike and some cuts towards year-end. The European Central Bank (ECB) raised rates by 0.25% at its most recent meeting (as anticipated) and signalled that it is likely to keep hiking and has not yet discussed cuts.
US 10-year government bond yields continued to drift higher, ending the month at 3.8%. The US dollar was weaker against most currencies in June (US Dollar Index -1.4% MoM/-0.6% YTD). Brent crude oil broke a five-month losing streak, rallying 3.1% MoM, although the price remains 13% lower YTD.
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