Global equities fell in August, with MSCI World down 2.4%* while the fund was down 2.8%*. MSCI World Growth was down approximately 2%, outperforming MSCI Value which was down 2.7% for the period. Markets have been concerned about economic data from China worsening which negatively impacted emerging markets performance. The U.S. government was downgraded by Fitch Ratings from AAA to AA+ due to the increase in their debt levels which is up $2trn from a year ago to $32.6trn by end of July; the rise of public debt has caused tension between the Democrats and Republics over the years as debt levels are fives more than they were in 2000.

The Jackson Hole Symposium happened end of the month with the Fed Chairperson’s remarks being within market expectations that there’s a possibility of higher rates for longer. Powell noted that core inflation is coming off, but the strong labour market is keeping inflation from coming off further- job openings remain high and real wage growth has been higher than inflation. The chairperson made it clear that inflation target will remain at 2%, killing rumours over the past few months that this target may change due to structural issues in the U.S. economy. The Fed will continue to be data dependent as they’ve been for the past year and further rate hikes weren’t ruled out.

In China, the property crises worsened with Country Garden, their biggest property developer in terms of home sales, struggling to pay off their debt. Moody’s estimates that the company has ¥27bn (c.$3.7bn) of debt due in 2024 alone; while their liabilities are approximately $200bn. As demand for property wanes in China, the story for this once beloved darling has turned into a nightmare with investors waiting for a default from this company amid its liquidity issues. In terms of economic data, it seems that China is in a deflationary period, inflation declined by 0.3% in July year-on-year but was up 0.2% month-on-month. Producer price index declined by 4.5% for July year-on-year and month-on-month this was down 5.4%. This picture shows that pressure the Chinese government is under to add more fiscal stimulus to the economy.

Overall, inflation is declining but risks are still there meaning that rate hikes aren’t completely off the table for the U.S. economy. The scenario currently seems to be higher rates for longer. There’s pressure on the Chinese government to provide more fiscal stimulus to the economy with the weakened consumer demand. In terms of seasonality, September is historically a bad month for equities so investors sentiments maybe more sensitive to bad news during the coming month. The Fed rate decision is on 20 September which will be an important day.

*Returns are in USD