July was a mixed month for global equities as the ongoing conflict in the Middle East and concerns over elevated AI valuations led to a wide disparity across different markets.

With energy stocks and financial stocks doing well, the FTSE 100 index was a strong performer in July as it returned 3.6%. However the tech-heavy NASDAQ index in the US slumped 6.6%. The Korean market continued its rollercoaster of a year, and despite falling 22% in July it remains 56% up year-to-date. Meanwhile the price of Brent crude oil continued to fluctuate, briefly surpassing $100 again, before ending the month around the $90 level.

In the UK, Andy Burnham took over the reins as Prime Minister and appointed former Defence Secretary John Healey as the new Chancellor of the Exchequer. Following another drop in Consumer Price Inflation to 2.6%, the Bank of England voted 6-3 in favour of maintaining the UK’s base rate at 3.75% but suggested it would be willing to raise rates if the US-Iran war were to escalate. Gilt yields continued to climb, with the 10-year yield rising from 4.75% to 5.05% during the month.

Full round-up of July market performance

In the UK, the FTSE 100 index gained 3.62% while medium and smaller companies, measured by the FTSE 250 ex IT index and the FTSE Small Cap ex IT index respectively, rose 6.37% and 3.51%. In the US, the S&P 500 USD index slipped 0.06% while in Europe the Eurostoxx 50 EUR index picked up 0.59%. Japanese stocks measured by the Topix JPY index went up 0.22%.

Emerging markets had a weaker month as the MSCI Emerging Markets index declined 4.26% in local currency terms, led by a slump in Korean Kospi index which slid 22.17%. However other emerging markets were positive, including Latin American equities measured by the MSCI Latin America local currency index which gained 3.59% and Indian stocks measured by the Nifty 50 index which rose 2.17%. Chinese equities also performed well as the MSCI China CNY index surged 8.90%

In the fixed income market, UK government bonds, measured by the FTSE Gilts All Stocks index, fell 1.54% with long dated (over 15 years to maturity) gilts dropping 3.62%. Sterling denominated corporate bonds, measured by the Markit iBoxx Sterling Corporates index, lost 1.22%. In the high yield market, the ICE Bank of America Sterling High Yield index decreased 1.14%.

In the commodities market, the S&P GSCI USD index, which consists of a basket of commodities including oil, metals and agricultural items, amassed 12.55%. Brent crude oil futures rallied 21.83% during the month. In the precious metals markets, the S&P GSCI Gold and Silver indices returned 0.57% and -3.25% in USD respectively, while in the agricultural markets corn and wheat futures gathered 6.78% and 10.07% in USD respectively.

In currency markets, it was a mixed month for the pound as it appreciated 1.67% versus the US dollar and 0.73% against the euro but depreciated 1.57% versus the Japanese yen.

Transcript

Leo Hallam (Head of Marketing)

I’m with Courtiers Head of Asset Management, James Timpson, to find out what’s been happening through what seems to be quite a long month…July. James, fill us in.

James Timpson (Head of Asset Management)

It’s actually been quite an interesting month. Obviously, we’ve got the two big themes at the moment; the ongoing conflict in the Middle East, and all of the possible concerns over elevated AI valuations. You’ve actually seen quite a bit of disparity between different markets. The UK market, FTSE 100, is quite full of energy and financial companies and they’ve done quite well in the last month. So the FTSE 100 is up more than three and a half percent. But in the US, which as we know is quite tech heavy, the S&P 500 is fairly flat. And the Nasdaq index, which is especially concentrated in tech stocks, that’s actually down over 6% in a month. So we’ve seen quite a big difference between different, not just geographies, but different styles of stocks as well. And year-to-date, the MSCI World Value Index has appreciated nearly 15%, whereas the MSCI World Growth Index is only up 6.5%. Being value investors, as we have been for quite some time now, has been really beneficial this year.

Leo Hallam

I was going to ask how it’s been for the Courtiers Funds. Thank you.

So lots going on – not least Andy Burnham taking the seat of Prime Minister in the UK and former Defence Secretary John Healy as the new Chancellor of the Exchequer, and a Bank of England meeting. What’s happening with the economy now?

James Timpson

I guess it’s too early to say what effects the new Prime Minister and Chancellor will have on the economy. There wasn’t much reaction at the time because, again, it was widely expected. And then last week, of course, we had the Bank of England Monetary Policy Committee meeting. As expected, they did keep rates flat at 3.75%. But it wasn’t a unanimous vote. It was 6-3 in favour and they did mention that were the US-Iran conflict to escalate, then they would be prepared to raise rates. Gilt yields have risen during the month. They started that the 10-year gilt yield started the month at 4.75% and it ended the month just over 5%. We’ve seen higher gilt yields and that’s mostly just uncertainty over possible inflation hikes, possibly caused by the ongoing conflict.

Leo Hallam

Can we now flip around the world to Korea? You’ve mentioned the KOSPI index, Korea’s main index, a few times over the last few months. What’s the story been there?

James Timpson

I reckon you could design a roller coaster at Thorpe Park based on what the Korean index has done this year. If you go back to January, the KOSPI index, which is the main index in Korea, was up 24%. February, another 19%. In March it fell off 19%, April up 30%, May it was up another 28%. Then it was flat in June and in July it fell off 22%. So it’s been just like a roller coaster, and I did actually ask Copilot to come up with some possible names. for what you could call a roller coaster based on the Korean stock market.

Leo Hallam

And what did the all-intelligent AI come back with?

James Timpson

We do like to use AI productively here. It came up with the Seoul Surge, the Bull of Busan. And how about the Won and Done? I like that.

Leo Hallam

Very good.

James Timpson

I think the reason why the Korean index has been so volatile this year is because the two biggest stocks in it, which make up 50% of the index between them are Samsung and SK Hynix, and they both deal with semiconductors.

Leo Hallam

So there’s a big queue for the roller coaster, would you say?

James Timpson

I don’t know. Are you another adrenaline junkie? I think even this one would be a bit too much for me, I think.

Leo Hallam

But we’re in Samsung.

James Timpson

We are in Samsung, yes, and despite all the volatility, Samsung is still up 115% year to date, so it’s still one of our best performing companies. But seeing all this volatility is just a reminder of why you don’t want to invest too heavily in just a few single stocks. It’s just one stock of many that we hold.

Leo Hallam

So, you might see a spike in volatility over here with Samsung, but you’re actually balancing that out across the portfolio.

James Timpson

Absolutely.

Leo Hallam

Fantastic. Thank you, James, to you and the team for keeping an eye on it all.

Anything on the horizon for you all?

James Timpson

We mentioned in the last video that we were looking to build our China exposure. You know, China’s become so big now that to have nothing at all in it would be an extremely active position. The latest stock that we’ve added to our emerging market portfolio in the Multi-Asset funds is called Haitian International. It’s an industrial company based in China, but listed in Hong Kong, which is how we’re able to trade it. It specialises in plastic injection-moulding machines, which sounds quite niche, but it generated $2.5 billion in revenue last year and it’s cropped up on our screen. So, it’s become the latest addition to our Emerging Markets (EM) portfolio.

Leo Hallam

Wow. Just on that, when you’re looking at all these stocks, are there any industries or companies in areas that you’ve not really been aware of before, that peak your interest aside of an investment?

James Timpson

That can happen, although we are completely agnostic in that respect. We look at what the model generates, we look at the shortlist. And we use that as our guide. So perhaps it won’t surprise you to know that a lot of the big AI names; Apple, Amazon, Nvidia, they don’t crop up because of their huge price multiples. Other than that, we’re pretty agnostic. We’ll go to whichever sectors show the most value.

Leo Hallam

If there was a board game manufacturer and the price was right, would you go for it?

James Timpson

Absolutely I would, and I’m still waiting for someone to challenge me at Scrabble. I’ve had that on my bio on the website for 13 years now and still no one’s played me at Scrabble. So anyone out there wants to play me, I’m up for it.

Leo Hallam

Thank you, James. Thank you to you and the team.

If you do have any questions, please speak to your adviser, contact us through the website, or if you want to challenge James to Scrabble, his bio is here.