Markets in a nutshell — August 2021
Global equities rose for the seventh straight month as corporate earnings again delivered ahead of expectations, especially in the US. The bullish sentiment persisted despite slowing global economic growth and growing uncertainties around new COVID-19 variants. Global supply chain difficulties are also giving rise to higher inflation, adding to the mounting risks.
US equities outperformed as American jobs rose by the most in a year and inflation stabilised at 5.4% year-on-year. Fed Chair Powell’s commitment that interest rates would not soon rise despite the high likelihood of bond purchase tapering before year end further supported markets. European stocks also rose, but underperformed as German industrial output fell for a third successive month due to supply chain bottlenecks and component shortages.
Emerging market equities recovered after their precipitous July fall, led by Indian bourses as an increase in vaccinations and moderating new COVID-19 cases supported investor sentiment. China underperformed as economic data disappointed amid the government’s broad-based regulatory push to facilitate high-quality development over the long term.
Materials was the only sector to fall as most commodities tumbled on a combination of dollar strength and weaker global growth expectations. Financials, information technology and utilities led sector gains.
Developed market bond yields were little changed in the month. The Fed continues to walk a fine monetary policy line, balancing clear improvements in underlying economic growth against rising inflation and concerns about the delta variant. The US dollar strengthened modestly against the major crosses despite the Fed’s dovish tone.
Industrial commodities iron ore, oil and copper fell after a massive run up over the last year, weighed by worries for slowing economic growth. Precious metals platinum, palladium and silver also gave up some recent gains while safe-haven gold was flat.
In the Foord International Fund, UK electricity and transmission utility SSE Plc and US lithium miner Livent contributed meaningfully to performance. US agricultural chemicals manufacturer FMC Corp and the US S&P 500 market index hedges detracted most from the fund’s performance.
The Foord Global Equity Fund lagged the index, driven primarily by the fund’s Chinese technology and materials sector holdings as negative short-term sentiment gripped Chinese equities. In our view, Chinese tech names present exceptional long-term value as they trade at deep discounts to their long-term earnings fundamentals.
Risk management remains at the forefront given the elevated risk environment. The managers continue to favour equities over other asset classes but are cautious and partially hedged given lofty US equity valuations. The funds are well diversified and optimally balanced between protecting capital against elevated market risks and capturing the long-term inflation beating investment opportunities that we can see.