Market Overview

Nervousness about the Delta variant of the virus grew, as did fears that it might threaten the global economic recovery.

Cases around the world began to rise again, despite progress with vaccinations. It became clearer that emerging markets are facing more difficult circumstances because of a lack of vaccine supply. The Olympics began in Japan, with no spectators and with the country in a state of emergency. In the UK, “lockdown” was replaced by “shutdown”, as businesses struggled to cope with the numbers of people told to self-isolate. There was ongoing confusion about the rules for travel during the all-important summer season. “Freedom Day” in England was greeted with caution.

It was a mixed start to the second half of the year. Developed market equities mostly pushed ahead as good news on corporate earnings overwhelmed ongoing concerns about the spread of the Delta variant of the coronavirus. The US and Europe led the way, with the UK also in positive territory but struggling to keep up. Japan was weak, with the challenging circumstances around the Olympics and the virus dampening sentiment.

In the UK, the strength of sterling weighed upon the large-cap overseas earners. Morrisons was the target of a bidding war, highlighting the ongoing interest in UK companies from private equity.

US markets were propelled by huge flows from retail investors, with much of this directed towards ETFs. The technology sector was also buoyed by strong earnings from many of the key players. On the other side of the coin, small-cap stocks and cyclical areas, such as the transportation, energy and banking sectors, struggled.

Asian and emerging markets were buffeted by a regulatory crackdown in China. The latest target was education providers, with the authorities asserting control by preventing them from making a profit. This followed recent interventions in the technology and property sectors, together with cryptocurrencies. In another development, shares in Didi, the Chinese ridesharing company, plunged after it found itself at the centre of a cybersecurity probe by the Chinese government. This caused more widespread concerns that technology firms will face more restrictions on data usage. China also signalled a wider clampdown on overseas listings.

Government bonds delivered robust positive returns in July, with longer maturity bonds benefiting most from the fall in yields. Index-linked bonds were also very strong. Credit markets enjoyed a broadly positive month, but underperformed gilts. Higher yielding credits paused for breath after a strong run of performance in recent months.