Q3 Market Commentary 2023

Over the third quarter of 2023, inflation remained elevated in the west with interest rates matching suit. The market narrative in the US flipped from a view of reducing interest rates to them being higher for longer. The US economy has shown resilience as rates have risen.

The domestic market

The Bank of England increased rates twice over the quarter by 25 base points to take rates to 5.25% in August. The Committee held these rates in September as inflation numbers fell and some other factors such as an increasing oil price and a slight rise in unemployment, started to tentatively impact the economy. The Consumer Price Index inflation numbers came out lower than forecast at 6.2% versus 6.8% consensus. This raised hopes that the market rate hiking may soon peak as the impact of the banks tightening makes its way into the real economy.

The UK market was up 2.35% over the quarter measured by the MCSI UK IMI index. The larger cap companies were boosted as sterling weakness proved to be tailwind for some of them as well as some strong earnings reports.

What about the USA?

In the US, equity markets remained relatively flat in terms of total returns but throughout the quarter there was some volatile movements as the markets continued to worry on the inflation/interest rate narrative. There was a broadening out of returns from the seven stocks that had been driving the markets for the first half of the year on an Artificial Intelligence theme. There was also some rotation from more growth focused companies into the value income producing ones. The energy sector benefited from a rise in the price of oil.

What’s happening in Asia?

In the far east, the Chinese reopening trade seemed to cool because of lower consumer spending and weak demand for exports. The Chinese government is likely to provide further support to the markets. India continued to perform well as strong economic data and good earnings from companies encourage flows into the region. Japan continues to perform well as a mix of government support, positive regulatory changes, robust corporate earnings and a weakening Yen and strong domestic demand helped boost the market.

ASAM’s approach to investment management

We regularly engage with all our fund managers. Within equities, we focus on the long-term drivers of total returns. This is a combination of the price you pay for investments, the earnings and dividends being produced, and their growth.

We always consider what is driving short term sentiment in the market. It’s now more common to both over and underreact to short term comments or short-term economic data. It is often during these periods that the active managers look to seek opportunity on a longer-term basis. ASAM favours equities with a preference for active managers at this stage. We have seen our underlying managers’ activity pick up with many trimming and adding to positions when opportunities arise.

We also favour a pool of diversified real asset funds. Some of the underlying investments in the funds are assets with inflation linked contractual payments, which are often backed by governments. Our portfolios remain diversified across each asset class, sector and geography, and our approach has the flexibility to take advantage of the changes in the markets throughout this period.

This information is obtained from sources considered reliable, but its accuracy and completeness is not guaranteed by Anderson Strathern Asset Management Limited. Neither the information or any opinions expressed constitute financial advice. Investments can fluctuate in price, value and/or income and may return less than the original amount invested. Past performance is not necessarily a guide to future performance. Anderson Strathern Asset Management Limited is authorised and regulated by the Financial Conduct Authority.