From our Market insight June 2023, we can see that the second quarter of 2023 has ended and some of the same themes from Q1 have continued over this quarter. Firstly, the highest returns from major markets are still been driven by a handful of leading technology stocks in the US. Secondly, the threat of inflation and the impact of rising interest rates in the Western economies is still paramount.

Growth assets

Share prices have deviated noticeably between countries moving much higher for Japan and the US than Europe, and especially the UK. The UK is experiencing the impact of embedded inflation and wage price spiralling, perhaps more so than other economies. This is partly due to supply side shocks. Examples here might be increased energy prices or the threat of strikes, and neither the government nor the Bank of England can effectively address these quickly enough.

Interest rates

In the UK, this month the Bank of England unexpectedly raised its interest rate by half a percentage point to 5%. That’s the highest level since 2008. What’s the reason? Annual consumer price growth failed to slow down for a fourth month running in May, sticking at 8.7%. UK core inflation, excluding the more volatile food and energy prices, is at the highest level it’s been since 1992 at 7.1% year on year. Markets are pricing in that interest rates will have to stay higher for quite some time yet so much of the monetary policy tightening that has already been delivered has yet to be felt by households and there’s a likely result that we’ll see a squeeze on discretionary spending as a result.

Factor performance

In terms of factor performance – overdue, small cap and value made a comeback as the best performers. Although over the first half of the year, it was growth in quality that have led the way in factor returns. Part of the reason for this included the US regional banking problems hitting value and the surge of new AI tech helping growth.

Defensive assets

Turning to defensive assets, over the first half of the year the headwinds of higher interest rates have weighed against major bond indices. The 10 year UK Gilt yield increased over the month, as did the comparative US treasury. However, Gilt prices are now looking attractive again and through a combination of tax breaks and discounts on prices, this means the effective rate of return on these investments is now looking far more attractive.

Market insight June 2023 – in summary

In summary, despite continued growth asset volatility, June marked the end of the first half of 2023 and was broadly positive for growth assets. Going into the second half of the year, there is greater differentiation between regions, countries, markets and sectors, and liquidity provision will be a key driver in the second half.

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This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and the value of investments can fall as well as rise. No representation is made that the stated results will be replicated.

Ian Hooper

Ian Hooper

Chief Investment Officer

Ian joined Progeny Asset Management as a founding director in 2016 and provides strategic oversight to the business.

Learn more about Ian Hooper