By Nicolas Bickel, Group Head of Investment Private Banking & CIO
The resumption of hostilities between Iran and the US demonstrates just how fragile the peace process is and that it is likely to remain chaotic, although the markets still appear to be influenced by other, more tangible factors. Indeed, concerns over the persistence of inflation in memory chip prices have led to a significant rotation within equity indices. Sovereign bond yields have also faced a significant resurgence in pressure, particularly in Europe. That said, as was the case in the first quarter, the second-quarter earnings releases, on which investors will be keeping a close eye, are likely to be the real deciding factor.
Following record highs in early June, a sharp rotation across factors and sectors has taken hold
Having hit numerous record highs, global equity markets have edged back slightly since the start of June, despite the memorandum of understanding on peace between Iran and the United States and a still-robust investment cycle in artificial intelligence. Whilst technology stocks contributed significantly to the April–May rally, they have weighed on index performance, particularly in the US, South Korea and China, due to the sector’s significant weighting in these markets (nearly 40% for the S&P 500, 60% for the South Korean KOSPI and 32% for the CSI 300). Other Asian markets and Europe, by contrast, have managed to fare well, partly thanks to falling energy prices.
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