Global stocks had another positive month in June, with prices rising by over 5%. These gains were broad based, meaning the market as a whole experienced increases. Developed markets did however perform better than emerging markets, such as China and South Korea. This was largely due to a strong performance by the S&P 500 in the US and the TOPIX in Japan.
These increases were despite growing concerns of a global financial recession and higher inflation, which did affect other types of investments. For example, the interest rates on some government bonds in the UK did increase to their highest levels since 2008.
There continues to be four main factors which have a significant influence on global markets. These are:
1. Persistent inflation worries, particularly in the UK
While the US and EU economies have started to see inflation go down, the UK continues to struggle to control inflation and in May saw CPI rise to a new 30 year high. In response, the Bank of England again raised interest rates.
2. More central banks are becoming cautious
The overall message coming out of all central banks is that the fight against inflation is not over. The Bank of Canada and the Reserve Bank of Australia also unexpectedly increased interest rates, demonstrating their concerns. The key outlier is the Bank of Japan, where after 30 years of deflation, inflationary pressures are welcomed.
3. Slow economic growth in China
Ineffective measures to stimulate growth in China saw their economy weaken further in June. The PBoC, China’s central bank, had decided to reduce short-term interest rates but not as much as the market expected. In addition, the Chinese property market has been left without support and continues to decline.
4. Geopolitical tensions in Russia
The war in Ukraine has largely been priced into markets so far this year, but the recent Wagner Group rebellion against Vladimir Putin highlighted the fragility of the situation. Its unpredictable nature therefore means there is always potential for the war to cause unexpected volatility within markets.
As we move into the second half of the year, stock and bond markets are anticipating different outcomes. Whereas stocks are optimistic and expect a smooth economic transition into the next 6 months, bond markets are more concerned and have priced in expectations of higher interest rates. The expectations for higher interest rates may also have the potential to cause further economic turbulence.
If you have any questions at all about your investments, or would like to further discuss your financial plan, please do not hesitate to contact your financial adviser.
— Aled Phillips
Chartered Financial Planner & Commercial Director
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The contents of this article do not constitute financial advice in any way; if you have any concerns about your finances you should talk to your financial adviser. The value of your investments can go down as well as up.
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