Global Markets

 

Global equities gained in July, with developed markets outperforming emerging economies. The S&P 500 rose 1.2% over the month, while the MSCI Asia ex Japan were almost unchanged and the MSCI Emerging Market index gained although positive, underperformed developed markets.

 

A market rotation favoured value stocks over growth stocks. Interest-rate sensitive asset classes outperformed. Small-cap returns were up 6.9% over the month, with global REITs posting a strong 6.0% and the Bloomberg Global Aggregate Bond Index delivering 2.8%.

 

In the credit market, investment grade bonds outperformed high yield bonds. The Bloomberg Global Aggregate Corporate Index, which tracks the performance of developed market IG bonds, returned 2.4% over the month. In contrast, US high yield bonds returned 2.0% and European high yield bonds returned 1.2% over the same period. Government bond yields fell across major markets as inflationary pressures eased.

 

As of 31 July 2024:

 

UK 10 Year Gilt Yield 3.97%

US 10 Year Treasury Yield 4.04%

Germany 10 Year Bund Yield 2.31%

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UK Market

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UK equities performed well as Labour's victory in the general election raised hopes of a sustained domestic economic recovery. Business confidence also surged in July. The S&P Global UK Manufacturing PMI climbed to 52.1, its highest reading in two years and exceeding market expectations. Meanwhile, the S&P Global UK Services PMI rose to 52.5 from 52.1 in June. This indicates that the UK’s GDP recovery, which began in May, continued through the summer. Domestically focused UK small and mid-cap equities, in particular, thrived as a result.

 

At its meeting concluding on 1 August 2024, the Bank of England’s Monetary Policy Committee voted 5-4 to cut the base rate by 0.25 percentage points to 5%, marking the first reduction since the start of the pandemic in March 2020. This signals a significant shift for the BoE and could bolster growth. However, persistently high inflation in services and wages remains a challenge.

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Ark Insights

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The UK equity market delivered strong returns in July. The FTSE 250 ex investment trust index climbed 8.0% over the month, boosted by strong performances in domestically focused housebuilding, retail, and banking stocks. The FTSE 100 also rose, gaining 2.5% despite potential headwinds from a strong currency, which could negatively impact the sterling value of its primarily overseas earnings.

 

A recent quarterly survey of UK chief financial officers (CFOs), following the 4 July election, revealed a sharp rise in risk appetite. Reflecting heightened revenue growth expectations and greater optimism about their companies' financial prospects, 36% of CFOs indicated a favourable climate for assuming more risk. This uptick in risk appetite, the most significant since the UK's post-pandemic recovery in 2021, suggests a positive outlook for corporate investment and expansion.

 

As always, your advisors would be more than happy to help you with any queries.

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The views expressed in this update are not intended as an offer or solicitation for the purchase or sale of any investment or financial instrument. The views reflect the views of Ark Investment Management at the date of this document and, whilst the opinions stated are honestly held, they are not guaranteed and should not be relied upon and may be subject to change without notice. Investments entail risks. Past performance is not necessarily a guide to future performance. There is no guarantee that you will recover the amount of your original investment. The information contained in this update does not constitute investment advice and should not be used as the basis of any investment decision. Any references to specific securities or indices are included for the purposes of illustration only and should not be construed as a recommendation to either buy or sell these securities or invest in a particular sector. If you are in any doubt, please speak to us or your financial adviser as appropriate.

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