Global equity markets, especially emerging markets, staged a strong recovery in H1 2023, according to Investment Metrics’ ‘Q2 2023 Factor Performance Analysis’ report.
The All Country World Index (ACWI) saw a 6.8% year-to-date increase by June’s end. However, the UK market faced difficulties compared to other regions.
European equities outperformed the UK with a 4.6% return in June and an average of 2.8% in Q2. Year-to-date, European equities achieved a growth of 13%. Large-cap equities consistently outperformed the region, and Value subfactors offered an overall premium of 50 bps in Q2.
Energy prices dropped significantly below €36/MWh due to increased supply. Despite a resilient labour market, moderating inflation and rising wages, consumption remained below pre-pandemic levels due to higher borrowing costs and persistent inflation. Industrial production, a crucial driver of European growth, lagged behind other sectors, impacting new orders, inventory levels and employment growth.
UK equities underperformed other developed markets, experiencing losses of -1.2% in June and -0.7% in Q2, with year-to-date returns of 2.6%. Neither Value nor Growth factors offered significant premiums in the region.
However, companies with high forecasted growth over twelve months outperformed the UK market, indicating increased confidence following a recent political transition. Notable outperformers included Aston Martin (+25%), Melrose Industries (+49%) and e-commerce retailer THG PLC (+39%).
In emerging markets, Value and Yield factors consistently outperformed, reflecting investor preference for companies with stable sales growth and recession-proof cash flow.
Brazilian equities, especially in defensive sectors like financials, energy and utilities, significantly contributed to Value outperformance. BTG Pactual (+17%), Brazil’s largest investment bank, reported record net income and revenue in Q2, while Petrobras (+21%) excelled in the country’s oil, natural gas and energy industry.
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