Similar to last years equity markets performed poorly in August. During the first three weeks of August, the MSCI World was down by 5.5%, led by richly valued Technology stocks. The bond market sell-off, fuelled by unprecedented bond issuance from the US Treasury after the resolution of the debt ceiling stand-off, goes some way towards explaining why Tech and more generally richly valued stocks, which are more sensitive to bond yields, underperformed.
Emerging market equities were down by similar proportions to US Tech stocks, led by China and renewed concerns over the real estate sector, US trade sanctions, and policy uncertainty.
The key question going forward is whether the reversal brings tactical opportunities, or whether this is the beginning of a market reversal. Our strategic stance on equities has remained Overweight.
First of all, the recent market pullback took place in a rather ordered manner. Implied equity volatility did rise in Europe and the US, but to a very moderate extent, and remains quite low in absolute terms.
We also note that China appears to be increasingly disconnected from developed economies. Contagion effects on global markets related to the missed coupon payments on two international bonds from China’s largest property developer were fairly limited.
Concurrently, the growth story in developed countries remains unchanged. Recently released data suggest that consumption stayed strong in the US in early Q3. In Europe, industrial production figures (for June) also do not point to any form of growth deceleration. In that context, the resilient growth momentum with some inflation remains a supportive environment for equities. After the recent pullback, we find renewed upside for the S&P 500 and the STOXX 600 Europe into year-end. US equity valuation is also back to more reasonable levels.
Author:
Thomas Neuhold, CFA
Head of Austrian Equity Research, Head of Real Estate Research
Kepler Cheuvreux
31 August 2023
 |  |
Note
Wiener Börse AG would explicitly like to point out that the data and calculations given in this report are historic values, which do not permit any conclusions as regards future developments or value stability. Price fluctuations and loss of capital are possible in securities trading. The contribution is the personal opinion of the analyst and does not constitute a financial analysis or a recommendation for investment by the exchange operating company, Wiener Börse AG.