July has been a challenging month for the diversified global investor. While the US earnings continued to beat estimates and justify sky-high valuations (for now), fault lines started to appear in markets elsewhere, particularly in Asia. The pandemic started raging in the populous (but lesser vaccinated) countries of South East Asia once again - Indonesia and Thailand were the worst hit. Even China saw the Delta variant spreading and had to shut down intercity travel across multiple regions - calling into question the efficacy of its vaccines overall. And on the flip side, Pfizer and Moderna declared stellar results and reported efficacy at 93% six months after the second dose - which continued to fuel their rally. The WHO got involved in the debate around booster shots for the immune-compromised part of the population in developed nations as well - saying at least 10% of all (less fortunate) nations should be vaccinated beforehand.
The biggest waves for the month undoubtedly came from the Communist Party which looked set to kick its regulatory arm into overdrive. It has so far taken aim at the most socially integrated aspects of its economy with the stated aim of more inclusive development, another expression of 'Capitalism, with Chinese characteristics. The Mainland's equity market and HK's index were down over 8% on the month as the online tutoring sector and the bigger Tech names - Tencent, Alibaba, and Meituan in particular, were made subject to increasingly stringent criteria regarding data sharing and employee benefits. This caused a minor rush for the exits across other sectors too, including the highly leveraged real estate sector, but there does appear to become stability coming back into the broader market now.
The US Dollar and Crude were both down only half a percentage point for the month despite the swings they exhibited. Crypto recovered from the fall in the earlier quarter to post strong returns (Bitcoin's 21% outpaced Ethereum's 14% for a change). Gold gained too with real yields not showing any overt signs of breaking higher, Copper was bid but Iron Ore continued its slide lower. Yields were lower almost everywhere in the world, and the US yield curve was little changed for the month as market-based expectations of inflation rose. With the Fed poised to start tapering asset purchases in the coming months amid a strong labor market, asset prices are set to trend higher as long as the underlying data holds up.
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August 17, 2021
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