August 2023 Market Insights
Developed markets pulled back after several months of positive performance. It appeared investors became concerned again about Chinese growth and economic data, especially in its real estate sector.
Written by Kevin Hua Co-founder & Chief Investment Officer
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What happened to the markets in August?
Developed markets pulled back after several months of positive performance. It appeared investors became concerned again about Chinese growth and economic data especially in its real estate sector.
The biggest turnaround to negative performance were Hong Kong’s HSI Index and HSCEI Index, down -8.45% and -8.22% respectively and followed closely by the U.S. Russell 2000 Index, up +6.06% (local prices).
Only Japan’s Tokyo TOPIX Index, up +0.41% (local price) experienced an up month. The weakness of the AUD by -3.59% against the USD, helped AUD returns for the Trends and indices.
The monthly performances across our Trends were +6.92%, -0.83% and -3.41% for the Big Data, Online Shopping Spree, and Clean Disruption Trends, respectively. The MSCI World Daily Net Total Return ex Australia Index (this MSCI Index measures the equity market performance of shares listed on the exchanges of 23 of the world's major developed economies ex Australia factoring in reinvested net dividends) ended the month +1.60% in AUD terms.
U.S. economic data remains stable
Economic data for the U.S. remained largely stable. The unemployment rate rose to 3.8% from 3.5% in July, and inflation rose slightly in July to 3.2% from 3.0%. Retail sales improved, while industrial, services and manufacturing activity contracted slightly.
There continues to be an expectation that the U.S. Federal Reserve has one more interest hike left for 2023.
Corporate earnings season was mixed and dragged down the overall market. Technology earnings were mixed, while sectors such as consumer, real estate and financials were also generally weaker. Energy plays were largely positive.
Inflation nearing peak in Europe but still lots of work to do
European markets were also weak. Annual inflation was estimated at 5.3% for August, staying stable compared to July. However, core inflation, which strips out food and energy prices, eased. Unemployment was 6.4% in July, the same level as in June. The HCOB purchasing managers’ index, which measures business activity, reached a 33-month low of 47 in August.
U.K. inflation fell to 6.8% from a year earlier, while annual rate of core inflation was unchanged at 6.9%. Nonetheless, the Bank of England increased base interest rates from 5.00% to 5.25% and warned that rates would need to remain elevated to reduce inflation.
The U.K. economy grew by 0.2% in 2Q 2023, beating consensus expectations of zero growth. However, economic activity appears to be slowing with the purchasing managers’ index falling below 50 indicting a contraction.
Economic date in China remains weak, but Japan’s economy is sound
Hong Kong and Chinese markets were the weakest amongst developed markets in August, as concerns over China’s real estate sector remain elevated, thus impacting the overall economy. China’s official purchasing managers’ index showed its fifth straight month of contraction, pointing to continued weakness in manufacturing.
In Japan, markets were mixed and took on a cautious tone after a strong recent rally. Overall, corporate earnings results have been sound, with companies exposed to inbound tourism benefitting from increased consumer activity.