Quarterly Investment Update

US equities managed to record another quarter of positive results, with the S&P 500 climbing by another 3.9% by the end of Q2. At the beginning of the quarter geopolitical concerns weighted on the index amid growing tensions between Iran and Israel, but bounced back once the situation deescalated. The index continued its upward trajectory amid a strong earning season and positive guidance by companies on AI growth outlook. The rally was led again by mega cap technology and growth stocks. The index reached fresh new record high levels in Q2, supported by signs that US inflation trend was slowing down coming in at 3.3% in May, slightly below estimates. However, bond yields rose driving bond prices down as job growth in May surpassed expectation. In addition, during their last meeting in June the Federal Reserve kept interest rates unchanged but predicted that inflation will end the year at 2.6%, higher than the 2.4% previously anticipated. The dollar appreciated vs peers amid speculation that the Federal Reserve will diverge from other central banks’ policies and will maintain interest rates elevated.

European equities recorded losses in Q2 with stock prices dropping by 3.73%. In addition, to tensions in the Middle East, European equities suffered a second blow in June after French President Emmanuel Macron called for a snap parliamentary election following a heavy defeat in European elections to Marine Le Pen’s National Rally (RN) party which has raised concerns over fragmented politics in Europe. Political risk drove French bond yields up, but German yields came down as the European Central Bank lowered interest rate in June by 0.25% to 3.75%. The euro area annual inflation rate was 2.6% in May, up from 2.4% in April. The euro also weakened by 0.7% vs the US dollar as political risk hangs over the region.

Swedish equities gained 2.03% in Q2 after the Riksbank lowered interest rates by 0.25% to 3.75%. Consumer sentiment in the Nordic country has strengthened recently, and housing prices gained for a sixth straight month in June as buyers expect some relief from lower borrowing costs. Economic growth offered another positive surprise and expanded by 0.7% in Q1, marking a return to growth. However, household consumption decreased by 0.3% as still elevated borrowing cost and falling real disposable income hint to a slow recovery. Unemployment dropped in May but there were some concerning signs as the number of new vacancies dropped, while employees impacted by bankruptcies reached a multi-year peak in June. The Swedish krona gained 0.57% vs the USD and 1.33% vs the EUR in Q2.

Chinese equities were higher in Q2 with investors attracted to the market’s low valuations. Hong Kong equities outperformed mainland stocks, attracting capital as the Hong Kong dollar which is kept fixed to the US dollar offers protection from a currency depreciation vs the USD. On the other hand, the onshore yuan, which has weakened nearly 2.4% so far in 2024, faces dim prospects as the People’s Bank of China is expected to keep monetary policy loose to support the economy. In recent months, Beijing has ramped up economic support measures but results have been mixed. China’s retail sales beat expectations in May, climbing 3.7% compared with a year ago, however other economic metrics missed forecasts. Trade tensions also escalated, as both Washington and Brussels have announced new tariffs on Chinese imports.

Indian equities posted their best gains in six months as they climbed by 7.3% in June after the re-election of the National Democratic Alliance (NDA). While the party returned with reduced majority, its re-election was still regarded positively by investors who seek for political stability and policy continuity. The Japanese yen continued to lose ground vs the USD as the interest rate differential between the two currencies is expected to stay high for longer. The Bank of Japan kept its benchmark interest rate unchanged, but indicated that it’s considering to reduce its purchase of Japanese government bonds.

In commodities, gold prices rose by 4.34% in Q2 as it continues to be supported by increased demand from central banks in emerging countries and particularly China who seek to diversify their reserve holdings away from USD.