Eastspring Investments
5 min read
Summary
Global equities declined in August and US 10-year Treasury yields rose. Global economic activity continues to hold up better than expected. Equities still have upside in the near term if positive trends persist.
Market update
Equities: Global equities declined in August with the Asian markets underperforming their developed peers. Declines were led by Hong Kong equities and Korean equities, whilst the US market was a relative outperformer although still in negative territory in absolute terms. Weak Chinese macro data, combined with renewed stress in the country’s property market, weighed heavily on risk sentiment over the month. US equity sentiment has pulled back meaningfully, becoming less stretched.
Fixed Income : Investors digested the news that Fitch had downgraded the US government’s credit rating to AA+. Although the Fitch announcement had a muted impact on 10-year US Treasury yields, they rose by 12 bps to end the month at 4.09%, as the month progressed on strong US economic data. The prospect of a default by Country Garden further weighed on sentiment during the month along with the news that China’s Evergrande had filed for chapter 15 bankruptcy protection in New York.
Macro overview
Growth: Global economic activity is holding up better than expected despite a high interest rate environment and heightened geopolitical uncertainty, supported by the global consumer. The market has shifted towards a higher probability of a soft landing, but the upturn remains relatively weak. Financial conditions have eased, global supply chains have recovered, and direct concerns about the health of the banking sector have receded. However, with a slower-than-anticipated economic recovery in China and extreme weather events in North Asia, the balance of risks to growth remains to the downside.
Inflation: The recent August 2023 US job market report showed wage increases (i.e., average hourly earnings) slowing down, potentially suggesting that US inflation pressures are easing. A weakening labor market will eventually weaken consumer spending and weigh further on aggregate demand. As such, disinflationary trends remain intact.
Monetary Policy: Weaker growth, softer aggregate demand and disinflationary trends in the prices of goods will likely lead to less hawkish outcomes in monetary policy. The Fed seemingly has a balancing act between curbing inflation (at the potential cost of high unemployment) or preventing much higher unemployment (at the potential cost of inflation running higher). Futures markets are currently pricing in little possibility of rate hikes from the FOMC following a cooler US labour market in August.
Please download report for asset class views and a discussion on key risks.
Singapore by Eastspring Investments (Singapore) Limited (UEN: 199407631H)
Australia (for wholesale clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore, is exempt from the requirement to hold an Australian financial services licence and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Australian laws
Hong Kong by Eastspring Investments (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.
Indonesia by PT Eastspring Investments Indonesia, an investment manager that is licensed, registered and supervised by the Indonesia Financial Services Authority (OJK).
Malaysia by Eastspring Investments Berhad (531241-U).
Thailand by Eastspring Asset Management (Thailand) Co., Ltd.
United States of America (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is registered with the U.S Securities and Exchange Commission as a registered investment adviser.
European Economic Area (for professional clients only) and Switzerland (for qualified investors only) by Eastspring Investments (Luxembourg) S.A., 26, Boulevard Royal, 2449 Luxembourg, Grand-Duchy of Luxembourg, registered with the Registre de Commerce et des Sociétés (Luxembourg), Register No B 173737.
United Kingdom (for professional clients only) by Eastspring Investments (Luxembourg) S.A. - UK Branch, 10 Lower Thames Street, London EC3R 6AF.
Chile (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Chilean laws.
The afore-mentioned entities are hereinafter collectively referred to as Eastspring Investments.
The views and opinions contained herein are those of the author, and may not necessarily represent views expressed or reflected in other Eastspring Investments’ communications. This document is solely for information purposes and does not have any regard to the specific investment objective, financial situation and/or particular needs of any specific persons who may receive this document. This document is not intended as an offer, a solicitation of offer or a recommendation, to deal in shares of securities or any financial instruments. It may not be published, circulated, reproduced or distributed without the prior written consent of Eastspring Investments. Reliance upon information in this document is at the sole discretion of the reader. Please carefully study the related information and/or consult your own professional adviser before investing.
Investment involves risks. Past performance of and the predictions, projections, or forecasts on the economy, securities markets or the economic trends of the markets are not necessarily indicative of the future or likely performance of Eastspring Investments or any of the funds managed by Eastspring Investments.
Information herein is believed to be reliable at time of publication. Data from third party sources may have been used in the preparation of this material and Eastspring Investments has not independently verified, validated or audited such data. Where lawfully permitted, Eastspring Investments does not warrant its completeness or accuracy and is not responsible for error of facts or opinion nor shall be liable for damages arising out of any person’s reliance upon this information. Any opinion or estimate contained in this document may subject to change without notice.
Eastspring Investments companies (excluding joint venture companies) are ultimately wholly owned/indirect subsidiaries of Prudential plc of the United Kingdom. Eastspring Investments companies (including joint venture companies) and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America or with the Prudential Assurance Company Limited, a subsidiary of M&G plc (a company incorporated in the United Kingdom).