Global markets delivered positive returns during June amid de-escalation of conflict in the Middle East, overlooking ongoing geopolitical uncertainty and focused on resilient economic activity, improving corporate earnings expectations and the long term investment opportunities created by artificial intelligence (AI). Although expectations that interest rates will remain elevated for longer continued to influence markets, investor confidence remained broadly resilient.
The United States remains a key driver of global markets, supported by healthy consumer spending, a robust labour market and continued business investment. Investors were encouraged by improving expectations for corporate profitability, with analysts revising earnings forecasts higher throughout the quarter and companies issuing strong guidance ahead of the reporting season. This suggested that confidence in corporate earnings remains well supported despite a more challenging monetary policy backdrop.
AI persisted as a key structural investment theme. Late June saw a sell off in AI and semiconductor equities, however markets rebounded as the month ended following South Korea’s announcement of £666bn investment into the countries chip manufacturing and AI industries over the coming years. This announcement rivalled the announcement earlier in the year by US tech giant’s $650bn AI investment, reaffirming expectations for sustained demand across semiconductors, power infrastructure and the industrial metals. While technology companies remain a key driver, the positive earnings outlook has increasingly extended across a broader range of sectors, reflecting the resilience of corporate America more generally.
Global equity market leadership broadened during June, with European equities among the strongest performers following a prolonged period of relative underperformance. Improving investor sentiment, attractive valuations and encouraging corporate earnings expectations helped support returns despite a backdrop of modest economic growth and ongoing policy uncertainty. Japanese equities also delivered positive returns with improving corporate governance, rising profitability and supportive domestic conditions continuing.
Emerging market performance was mixed. Strong returns from Taiwan, South Korea and India were offset by negative performance in China, where concerns over domestic economic momentum and trade uncertainty continued to weigh on sentiment. Overall, broad emerging market indices finished the month little changed however have grown impressively over the past year. India remains down year to date, suffering from rising oil prices, foreign investor outflows and trade challenges.
The UK equity market delivered mixed performance during June. Large-cap companies generated positive returns, supported by strength in defence and mining stocks, as well as their greater exposure to overseas revenues. In contrast, UK small and mid-cap equities declined as persistent cost pressures, political uncertainty and expectations that interest rates will remain elevated continued to weigh on more domestically focused businesses. Nevertheless, attractive dividend yields and relatively compelling valuations continue to provide support for long term investors.
Fixed income markets delivered modest positive returns during the month. Global bond yields stabilised as investors reassessed the outlook for inflation and monetary policy, easing inflationary pressures helped support both government and investment grade corporate bonds. Credit markets remained resilient, underpinned by healthy company fundamentals and improving expectations for corporate profitability.
Commodity markets were mixed during June. Energy prices softened as concerns over supply disruptions eased, helping to moderate inflation expectations. Industrial metals remained well supported by structural demand linked to electrification, AI infrastructure and data centre construction, while gold declined as resilient economic data reduced expectations for near-term monetary policy easing.
Markets have shown a high level of resilience so far this year, despite lingering geopolitical uncertainty and restrictive monetary policy. De-escalation of the Middle East conflict, improving corporate earnings expectations, continued investment in AI infrastructure and resilient economic data helped support investor confidence, while stock market strength started to spread beyond just the US to other countries.. Maintaining diversified portfolios across regions and asset classes remains important as investors continue to balance long term growth opportunities against an evolving macroeconomic environment.
Source of data: FE Analytics, www.bankofengland.co.uk, www.ons.gov.uk
This commentary in no way constitutes a solicitation of investment advice and should not be relied upon in making investment decisions. Past performance is not a reliable indicator of future results. The value of your investments can fall as well as rise and are not guaranteed.
