Posted on: 06 August 2015
On a relative basis, July was a good month for UK stocks,
finishing up 2.4%, and making up for some of the underperformance
in June. This was ahead of the rest of the world, where equities in
aggregate were up by 1.4% in sterling terms.
On a sector basis, the pharmaceutical, tobacco, and household
goods sectors were the most significant contributors to returns, as
investors favoured their resilient earnings streams, while mining,
oil & gas producers and beverages were the biggest negative
Emerging markets continue to underperform developed markets,
from both an economic perspective and a market perspective. Brazil
and China, two of the powerhouses of Latin America and Asia
respectively, have hit a soft period of economic growth and
investors are in fear of the medium-term prospects of each
As China moves from an investment-led model of growth to
one with a greater balance between consumption and investment, its
economy has to digest large amounts of debt issued since the
Financial Crisis, while at the same time opening up to investment
from the rest of the world. This is a slow process, and the Chinese
Government has had mixed success so far. July saw another
correction in the Chinese equity market, following the introduction
of share sale restrictions.
Brazil has been caught at the sharp end of China's slowdown and,
despite having only 11% of its GDP linked to exports, the drop in commodities prices has
had a detrimental effect on the Brazilian real, which has fallen by
33.6% against the US dollar over the last 12 months.
It seems Brazil has made its own problems worse through poor
management of the economy by the present Government, led by Dilma
Rousseff. During July, S&P downgraded its outlook on Brazil's
credit rating to 'Negative' from 'Stable'. This means there is a
chance of a full downgrade to a rating that would be below
investment grade. Joaquim Levy, Brazil's finance minister, is
seeing resistance in Congress to his pro-reform agenda, which has
disappointed the credit ratings agencies. Brazil, like much of
Latin America, has a great deal of potential, but the road to
realising this potential is likely to be long and bumpy.
We retain a diversified exposure to emerging markets within
client portfolios, seeking out collective funds that have the
potential to outperform over the investment cycle.
Other highlights in July included Greece, which is now
technically classified as an emerging market. Greece's Prime
Minister, Alexis Tsipras, secured the support of Greek MPs to begin
a series of reforms required by the country's bailout agreement,
while the IMF decided to pull its contribution to the next bailout,
citing a poor pace of reform and high debt levels. We continue to
monitor the situation and its broader impact on Europe.
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All data has been compiled by Duncan Lawrie from sources believed
to be reliable. Full details of sources are available on
Information provided in the
above articles and any opinions expressed are for general use only.
You should always take specific advice to suit your personal
circumstances before taking any action. Errors and omissions
The value of investments
and income generated may fall as well as rise, and investors may
not get back the amount invested. Past performance is not a
reliable indicator of future results.