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Charts of the month: four indicators of what shaped markets in July

How did Covid impact consumers? Did global bonds do better than expected? Dr. Nisha Long wades through the data for some interesting takes on the past month in markets.

What you might have missed...

The month of July produced many momentous moments for markets, but, what stats and analysis really stood out? Here is a collation of last month’s Chart of the Week articles from Dr. Nisha Long, head of cross-border investment research at Citywire.

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What you might have missed...

The month of July produced many momentous moments for markets, but, what stats and analysis really stood out? Here is a collation of last month’s Chart of the Week articles from Dr. Nisha Long, head of cross-border investment research at Citywire.

Inside the VIX’s latest wild ride (July 6)

The CBOE VIX index measures the market’s expectations of volatility and achieves this by using option prices from the S&P 500. The 2020 stock market crash began on 20 February 2020, with the VIX hitting a height of 82.7 on 16 March when markets continued its downward spiral.

Around this time, Goldman Sachs warned that US GDP would shrink 29% by the end of Q2 2020. Q2 fared better in terms of market volatility, as countries began to come out of lockdown and return to some kind of normality. The VIX index stood at 51 at the start of Q2 and finished on 30.4 at the end of June.

There was a slight upward trend on 10 June when the index reached 40.8 in the aftermath of the US Federal Reserve’s monetary policy statement and Jerome Powell’s afternoon news conference that day. However, at the start of Q3, the index stood at 28.6, as of 1 July.

 

The diverging stories of EM and frontier favourites (July 13)

The MSCI Emerging Markets Index has had a total of six new countries added to the mix in recent times. Greece was demoted to this level in 2013, while Qatar and the UAE were added in 2014. Pakistan rose from the frontier level in 2017and Saudi Arabia became one of the newest entrants last year.

Turkey could also be among those to take on frontier status, given concerns over its governance, which is impairing foreign investment. This was the fate that befell Argentina before it was returned to the index in 2019.

The chart shows the performance of these respective equity markets of these countries in the first half the year in US dollar terms. Greece fell the most with the country’s equities, measured by the MSCI Greece index, falling 39% and Pakistan fell 31%. This is while the countries facing threat of demotion to frontier markets, namely Turkey and Argentina, lost 17% and 12.8%, respectively.

A tale of two halves for global bonds (July 20)

The performance of global bond markets was a tale of two halves over the start of 2020. Markets experienced significant falls in Q1 2020 due to the pandemic, with high yield bonds being hit the hardest. This is while global sovereigns and corporates were also suffering.

Global high yield bonds – as measured by the Bloomberg Barclays Global High Yield index – fell 15% in US dollar terms over Q1, while global sovereigns were down 4.2% and global corporates dropped 5.4%.

However, high yield bonds clawed back returns over Q2 2020 and the index was up 12.2%. This is while global sovereigns and global corporates returned 7.1% and 8.6% in Q2, respectively. High yield bonds are known to stage a huge recovery after a market meltdown, and this time has been no different.

Consumer stories have a split performance (July 27)

The Covid crisis has sent stocks through a whirlwind with some reaching phenomenal heights, such as Tesla and Amazon. As well as other world indices, these stocks have a hefty weight in the MSCI World/Consumer Discretionary index with Amazon at 29.8% and Tesla at 4.1% to the end of June.

These stocks are one of the main drivers of the market recovery that took place beginning 19 March. From 19 March to 22 July the index has risen 60.5% in US dollar terms.

In contrast the MSCI World/Consumer Staples index has risen 17.9% during this time in US dollar terms. The index comprises of stocks such as Nestle, Proctor & Gamble, L’Oréal, Coca-Cola and Walmart, just to mention a few.

 

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