Financial markets endured another choppy month with steep declines recorded by sections of the UK equity market, while emerging market stocks made decent gains. As has been the case for the majority of 2020, COVID-19 dominated newsflow; the pace of new infections rose again in July in many regions, most notably in parts of the US.
Overall it was another month when risk assets performed well although the strength of sterling, alongside US dollar weakness, depressed the returns from overseas markets.
Emerging market equities comfortably outperformed developed market stocks, returning 2.6% relative to -0.9%. Chinese and Latin American equities were the best performers, rising 5.8% and 4.4% respectively.
By contrast, UK equities, as measured by the FTSE All Share, fell 3.6% in July, with banks and energy firms delivering heavy losses (-11.1% and -11.6% respectively). Japanese equities also fell sharply, generating a negative return of 7.7%.
In terms of equity styles, growth stocks outperformed value, with consumer discretionary the best performing sector. Meanwhile, gold performance remained strong in July and the precious metal price is approaching its all-time high.
Second quarter economic data was published during the month, and the US annualised fall of 32.9% confirmed the largest GDP drop since WWII, however it is clear investors are focusing on the recovery. US retails sales have rebounded 27% from the lows in April and manufacturing surveys indicate reasonable growth. However, consumer confidence remains very weak.
Fixed income markets were broadly flat for the month. Gilts appreciated marginally, and credit spreads narrowed meaning corporate bonds outperformed. It was notable the developed market credit issuance is at its highest since 1980 – corporates are issuing record amounts of debt to survive this COVID crisis, at a time when borrowing costs are at record lows and monetary authorities are buyers.
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