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Monthly Market Update - August 2023

By Sheridan Admans
Reading time: 7 minutes

Just like the Great British weather over the summer, August brought mixed performance in global markets, with equities underperforming commodities and bonds. Commodities were the standout-performing asset class, while REITS continued to struggle. Overall, market participants expressed concerns about limited stimulus activity in China, as deflationary headwinds blew and the region's debt-laden property sector raised fears of contagion once again.

Just like the Great British weather over the summer, August brought mixed performance in global markets, with equities underperforming commodities and bonds. Commodities were the standout-performing asset class, while REITS continued to struggle. Overall, market participants expressed concerns about limited stimulus activity in China, as deflationary headwinds blew and the region's debt-laden property sector raised fears of contagion once again.

In the UK, headline inflation dropped in line with expectations, as the Bank of England continued to raise interest rates. In the US, its economy showed signs of softening, with job creation slowing and consumer confidence dipping. Japan's GDP exceeded expectations, driven by robust exports.


In July, headline inflation in the UK dropped to 6.8%(1), in line with market expectations, down from the previous month's 7.9%. Core inflation, which excludes energy, food, alcohol and tobacco prices, remained at 6.9%, slightly higher than the economist forecast of 6.8%.(2) UK wages grew at a record pace of 7.8%(3), the highest level since comparable records began in 2001. It was not therefore surprising that The Bank of England (BoE) continues to see the likelihood that rates may still have some way to go. At the start of August, the BoE raised interest rates by 0.25% to 5.25%(4), coinciding with UK economic growth surpassing market consensus year-on-year, reaching 0.4%(5). Additionally, month-on-month GDP rose by 0.5%(6), exceeding expectations. However, retail sales disappointed with a year-on-year decline of -3.4%(7), falling more than the consensus forecast of -2.2%. The composite Purchasing Managers' Index (PMI) also fell below market expectations, indicating economic contraction. The Purchasing Managers Index, or PMI, is a monthly survey of the manufacturing industry.

In the Eurozone, notable key data was scarce in August due to the holiday season. Year-on-year inflation declined to 5.3%(8), as anticipated.

The US economy was softer in August with ISM Non-Manufacturing PMI data coming in below consensus, as did year-on-year inflation. Consumer confidence dipped below expectations but remains bullish. The Services Purchasing Managers Index, or ISM, is a monthly survey of the services industry and is used as an indicator for outlook. US job creation slowed more than expected in August, a possible sign that the economy might be starting to slow under pressure from rising rates. Nevertheless, new home sales increased in July.

Japan's gross domestic product (GDP) grew by 6%(9) year-on-year, surpassing expectations, thanks to robust exports. However, domestic demand was weaker, with a surprising drop in private consumption expenditure despite a rise in employee compensation for the first time in seven quarters.

In China, data revealed a deflationary trend, although this may be attributed to the volatility in pork prices a year ago. Property concerns continued to impact Chinese markets, with new home prices falling in June for the first time in a year. As a response, China unexpectedly cut key policy rates for the second time in three months and introduced additional stimulus measures at the end of the month, although not the substantial fiscal measures investors were hoping for. However, some argue that Chinese consumers need to increase their spending to support the economy.

Turkey's central bank surprised investors by implementing a larger-than-expected interest rate rise to 25%(10), signalling its commitment to address inflationary challenges in the region.

In other news, BRICS (Brazil, Russia, India, China and South Africa’s coalition of emerging economies) invited six other nations to join the membership, including Saudi Arabia and Iran. The expansion of this coalition adds economic heft, creating a platform that adds more weight to international decisions with some arguing it could pose a challenge to the currency dominance of the US much further down the line. While this event was taking place in South Africa, the Jackson Hole symposium was taking place in America. A platform where global central bankers listened to Federal Reserve Chairman, Jerome Powell, acknowledge US inflation is falling and its economy had been fairly unscathed by the toughest rate tightening policy in forty years. He argued this is not enough yet to prevent rates from rising further.


In August, global equity markets saw mixed performance, with some regional markets such as India and the US performing well. Overall equities underperformed both commodities and bonds. The MSCI World index returned -1.05%(11), while the Bloomberg Global Aggregate index for bonds increased by 0.15%(12), and the Bloomberg Commodity index rose by 0.77%(13). Among the regional indices, the S&P 500(14) was the top performing index, which returned -0.26% followed by MSCI India returning 0.57%(15). By a long distance between the regions measured for this report, China's MSCI China H index was the worst performer, returning -7.75%.(16) The NASDAQ 100 index managed returned -0.80%(17), after a late rally toward the end of August, benefiting from Nvidia's strong earnings and investors' return to risk assets due to soft economic data. Despite the late rally, the index had its worst month in 2023 to date.

A selloff in bonds dominated the asset class for most of August. Yields climbed in a complex cocktail of higher Fed rates, surging US Treasury issuance, a sovereign credit rating downgrade, and Chinese dollar selling to shore up a beleaguered yuan. A retreat came towards the end of the month as soft economic data raised hopes that central banks could be done raising rates.

Growth underperformed Value for most of August, albeit by a fairly close margin. Growth got a boost from softer economic data leading to further speculation that rate rises are closer to the endpoint and blockbuster results from the artificial intelligence tech giant Nvidia in the last quarter of August helped Growth to slightly outperform Value by month end.

REITS continued to struggle in August as they have much of 2023. It was the worst-performing asset class with the MSCI ACWI/REITS index returning -1.88%.(18) The asset class was impacted by higher yields on bonds proving that bonds can be a lower-risk opportunity for investors hunting for yield. China’s troubled property sector raised the possibility once again of contagion fears.

Commodities were the best-performing asset class in August, in a month where most asset classes seemed to be treading water. Gold spent most of August underwater (as did most asset classes) but managed to eke out a positive return by month's end. Gold rose in Sterling terms, boosted by UK manufacturing data tumbling and as a result a weaker pound against the US dollar, as well as cracks starting to appear in many other economies.

While it can be hard to draw many conclusions from market activity in August due to the typically lower trading activity levels than in other months, it is clear that market participants aren’t yet happy with the limited stimulus activity in China. Concerns about the region's debt-laden property sector are also taking their toll on stocks, with contagion fears knocking sentiment across markets. Underwhelming economic data, along with the ever-deepening property crisis, is unnerving investors.

Considerations for long-term investors

As the market wrestles with inflation, deflation, contagion, rate hikes and the possibility of recession some might find a capital preservation strategy a more comfortable opportunity than trying to navigate conditions.

Capital preservation strategies often help investors protect their capital from inflation or market volatility. They can also be used by investors nearing retirement and seeking to preserve their wealth for the future.

Capital preservation can be built using a portfolio of funds to mitigate certain types of risk as much as feasible, knowing that it is impossible to reduce risk entirely. One approach involves using funds that are specifically designed to preserve capital. These funds typically employ strategies such as investing in low-risk assets, diversifying across different asset classes and sectors, and implementing risk management techniques. TILLIT is a platform where investors can find such preservation-focused funds.

Alternatively, investors can build or adjust their current portfolio by incorporating index funds. Index funds are passive investment vehicles which aim to replicate the performance of a specific index, such as a bond, equity and commodity, or sector indices. These funds provide a low-cost starting point for investors, as they generally have lower expense ratios compared to actively managed funds.

By using index funds, investors can focus on determining the right asset allocation for their capital preservation goals, without having to worry about different investment styles or how active management strategies would work together. This approach allows for simplicity and ease of implementation while still offering diversification and exposure to various asset classes.

Capital preservation funds or strategies generally offer a low-risk way to grow wealth over time, possibly provide a source of income in retirement and give some peace of mind knowing that the investment is not subject to the vagaries of the stock market. However, in exchange for this peace of mind, investors may find that preservation strategies could limit their long-term returns as the funds or strategies tend to be quite conservative.

Capital preservation strategies or funds can be relatively simple or incredibly complex. Simpler strategies will likely lean towards short-dated and inflation-linked bonds, gold and blue-chip equities. Whereas, more complex ones are likely to be exposed to long and short positions in different asset classes including currencies. Ultimately, these funds focus on a highly diversified and flexible spread of assets with low correlation to each other to help mitigate overall losses.

(1) Source: U.K. Consumer Price Index (CPI) YoY,
(2) Source: U.K. Core Consumer Price Index (CPI) YoY,
(3) Source: Average weekly earnings in Great Britain: August 2023, Office for National Statistics,
(4) Source: U.K. Interest Rate Decision,
(5) Source: U.K. Gross Domestic Product (GDP) YoY,
(6) Source: U.K. Gross Domestic Product (GDP)
(7) Source: U.K. Core Retail Sales
(8) Source: Eurozone Consumer Price Index (CPI)
(9) Source: Japan Gross Domestic Product (GDP)
(10) Source: Turkey One-Week Repo
(11) - (18) Source: FE Analytics, price spread bid to bid in pounds sterling (for the period 31/07/2023 - 31/08/2023)

Date of publication: 1st September 2023

The information in this post is not financial advice, it is provided solely to help you make your own investment decisions. If you are unsure about whether an investment is appropriate for you, please seek professional financial advice. You can find more information here.

When you invest you should remember that the value of investments, and the income from them, can go down as well as up and that past performance is no guarantee of future return.

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