Global Markets

 

Global developed market equities delivered a positive return of 2.8% in the second quarter. Returns were concentrated in large-cap companies and growth-oriented US technology companies benefiting from the booming AI industry. Smaller-cap stocks and REITs, which are more sensitive to interest rates, were under pressure due to the persistently high interest rate environment. Strong performance in Asian markets helped emerging market equities outperform developed markets in the second quarter. The MSCI Asia ex-Japan index rose 7.3% and the MSCI Emerging Market index rose 5.5% in the quarter, while the S&P 500 rose 4.3%.

 

In contrast, fixed income investors had to endure another negative return quarter, with global investment-grade bond prices dropped by 1.1%. German Bund prices fell by 0.7% and UK Gilt prices fell by 1.1%. US Treasury prices remained unchanged from the end of the first quarter.

As of 28 June 2024:

UK 10 Year Gilt Yield 4.18%
US 10 Year Treasury Yield 4.40%
Germany 10 Year Bund Yield 2.50%

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UK Market

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UK GDP data showed stronger-than-expected growth, with first-quarter growth forecast to reach 0.7%. At its meeting concluding on 19 June 2024, the Bank of England's Monetary Policy Committee voted 7-2 to maintain the base rate at 5.25%. Two members voted to reduce the base rate by 0.25 percentage points to 5%. In May, the UK's Consumer Price Index (CPI) inflation rate fell to the target of 2.0%. Short-term inflation indicators are also expected to moderate further, especially the household inflation.

 

We expect the Bank of England to start cutting interest rates soon as inflation slows. However, service sector inflation will remain high for a longer period, offsetting the impact of a weaker labour market.

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Ark Insights

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The second quarter of 2024 maintained the robust economic momentum established in Q1, with global equities continuing their positive trajectory. Early Q2 saw a significant reduction in investor expectations for central bank rate cuts due to concerns about the overheating environment in the US. This led to the underperformance of global bond markets. However, these concerns faded over time, reviving hopes for a soft economic landing. Additionally, the European economy showed signs of recovery, with the cost-of-living pressures easing.

 

Overall, the macro environment benefited riskier fixed income assets. Sustained economic activity throughout Q2 maintained corporate profitability resilience. This resilience translated to controlled default rates and credit spreads. European and US high yield were the standout performers within the fixed income market, returning 1.5% and 1.1% respectively. With markets anticipating rate cuts by major central banks, the medium-term outlook for fixed income remains compelling.

 

As always, our Investor Relations team 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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