Global fund and stock market review – Chinese recovery continues to stall

Loosening of COVID-19 restrictions in China at the start of the year led to expectations that the economy would return to the strong growth investors had been used to. The re-opening was popular among investors as they put money back into Chinese and emerging markets in near record numbers.

However, it hasn’t been the kick-start that many were expecting. Despite growth in the second quarter being above expectations, it was just a 0.8% increase. This is well below growth in the first three months of the year and even lower than pre-pandemic levels.

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Why has growth in China stalled?

There are a few reasons why growth has stalled in the world’s second largest economy. Exports is one.

Exports have always been a key driver of economic growth in China, but in June they fell 8.3% compared to a year earlier. This was despite the country still dealing with COVID-19 lockdowns a year ago.

Exports have fallen as many of the biggest importers of Chinese goods are dealing with higher interest rates which is slowing down their spending.

Consumer spending in China started the year strong, meeting expectations and rising 18.4% in April compared to a year earlier.

However, after a strong start to the year, it was lacklustre throughout May and June.

Retail sales grew just 3.1% compared to a year earlier in June, down from 12.7% in May. This is despite Beijing cutting interest rates in order to encourage lending. However, consumers are still continuing to save rather than spend.

With weakening demand and lower exports, China is now flirting with deflation to add to their growing number of problems.

Is it time to invest in China?

US inflation nears the Fed’s 2% target

In the US, headline inflation fell to 3% in June – the lowest level since March 2021. Core inflation, which strips away the most volatile elements of inflation like food and energy, also fell more than expected to 4.8%.

As inflation nears the Fed’s long-term target of 2%, the impact of the rate rising cycle appears to be having an effect on the US economy – in particular the job market. The US added just 209,000 new jobs in June which was below expectations.

However, retail spending and wage growth, which are other key metrics the Fed look out for when making interest rate decisions, continue to be strong. Despite the recent fall in inflation, the consensus is that the Fed will continue to raise interest rates.

How have global markets performed?

Global stock markets have delivered mixed results over the 12 months to the end of June. Over the past year, the broader global stock market has risen 11.71%*. As always though, past performance isn’t a guide to future returns.

The FTSE World Europe ex UK index rose 19.64% over the past year. Investors have turned to European companies as they debate whether the high valuations in US companies are still justified.

European companies have been trading at a significant discount compared to their US peers and some investors have shifted where they’re invested in order to capture this. European stocks have also benefited from an improving inflation picture.

The Chinese market on the other hand, fell by 27.05% over the past 12 months.

Technology had the highest returns of any sector over the past year with a gain of 27.80%. Gains in the technology space have been fuelled by recent advancements in artificial intelligence (AI).

Many believe AI will give businesses the opportunity to be more streamlined and efficient, while providing better services and products. The businesses that have the most to gain, or have been early adopters, have typically been in the technology space.

Telecommunications had the lowest returns of any sector over the past 12 months, returning -5.29%.

One-year stock market performance

Scroll across to see the full chart.

Past performance isn't a guide to future returns. Source: *Lipper IM, to 30/06/2023.

Source: *Lipper IM, to 30/06/2023.

How have our Wealth Shortlist funds performed?

Global funds on the Wealth Shortlist delivered mixed performance over the past year, with some faring better than others.

During the second half of 2022 funds investing in companies undergoing a turnaround known as ‘value’ focused funds, or those focused on paying a dividend, generally did well.

However, at the beginning of 2023 the market rotated. Those investing in companies capable of above-average earnings growth, also known as ‘growth’ funds, typically performed better.

A year is a short time to assess the skills of a fund manager though. Managers with different strengths, styles and areas of focus will perform differently over time.

Investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a long-term diversifed portfolio.

Remember, all investments and any income from them can fall as well as rise in value, so you could get back less than you invest. For more details on each fund, including its risks, please see the links to their factsheets and key investor information below.

Rathbone Global Opportunities has been the best-performing fund in the global sector of the Wealth Shortlist over the past 12 months.

The fund invests in growth-focused companies, which are those with positive prospects for growth in cash flows and earnings. The fund returned 16.01%* versus 10.67% for the IA global sector.

The managers have benefited from growth style investing coming back in favour in 2023. However, stock selection has been the main driver of returns. The fund’s investment in US semi-conductor Nvidia and French luxury brand Hermes were among the largest contributors to performance over the last 12 months.

FIND OUT MORE ABOUT RATHBONE GLOBAL OPPORTUNITIES, INCLUDING CHARGES

RATHBONE GLOBAL OPPORTUNITIES KEY INVESTOR INFORMATION

The Troy Trojan Global Income fund was the weakest performing fund in the global sector of the Wealth Shortlist, returning -0.62% over the past 12 months.

The manager’s focus on high-quality companies means we typically expect the fund to hold up relatively well when markets are falling. In contrast, we expect the fund to lag the peer group when markets rise quickly.

This has been the case more recently as markets have rallied, particularly in the US and within the technology sector. We continue to rate the team’s disciplined investment approach, it’s been used across a range of funds over the years with good outcomes – as ever though, there are no guarantees this will continue.

FIND OUT MORE ABOUT TROY TROJAN GLOBAL INCOME, INCLUDING CHARGES

TROY TROJAN GLOBAL INCOME KEY INVESTOR INFORMATION

Past performance isn't a guide to the future. Source: *Lipper IM, to 30/06/2023.

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