Ark Review of the Month
Global economic recovery continued in August as restrictions on business activities were further lifted in most developed countries. The US S&P 500 Index increased 3.0%, the UK FTSE All-Share Index gained 2.7% and the MSCI Europe ex-UK Index increased 2.6%, leading the global equity market to achieve a total return of 2.5% in August. Emerging market equities rebounded after a rather difficult start, ending the month with a 2.6% gain.
Meanwhile, global sovereign bond yields have been increasing steadily, with overall prices falling 0.5%. Prices of the US Treasuries and the UK Gilts declined by 0.2% and 0.9% respectively. Prices of global investment-grade corporate bonds also fell slightly, while emerging market government bonds and high-yield corporate bonds both achieved positive growth.
Government bonds yield as of 31 August:
UK Gilt 10 Year @0.71%
US Treasury 10 Year @1.31%
German Bund 10 Year @-0.38%
UK GDP has maintained its strong growth momentum, with the economy growing by 4.8% in the second quarter of 2021 compared to the previous quarter. An analysis published by Financial Times suggests that the economy is likely to return to the pre-pandemic level by the end of the year. Such growth is also good news for public finances. As many economic support measures began to wind down, government borrowing between April and July this year was £78 billion, down £62 billion from the previous year and well below forecasts made by the Office for Budget Responsibility (OBR) at the start of the year.
Since July, the government's furlough scheme has been winding down. For the 1.9 million employees currently on furlough, the government only covers 60% of their salary, lower than the previous level of 80%. The scheme will come to a full end by the end of September. The Ministry of Finance predicts that the unemployment rate will rise to 4.8% - 6.0% after the scheme ends, higher than the current rate of 4.7%.
The automotive industry has long been the backbone of the UK economy. Total manufacturing output in the second quarter was 1.8% higher than the first quarter and 26.3% higher than the same period last year, with the main driver being transport equipment manufacturing. But today's global automotive industry is in its transition. To achieve the net-zero goal, the sale of traditional gasoline and diesel vehicles will need to be phased out. The UK government announced at the end of last year that it would support the shift to electric vehicles manufacturing, and will invest heavily in building public charging network.
However, the Science and Technology Committee of the UK Parliament recently released a report showing that the government's support for the battery and fuel cell industry is lacking, and not enough to support the future development of the new energy vehicle industry. According to the "rules of origin" in the UK-EU trade agreement, if the UK wants to enjoy duty-free access to the EU after Brexit, UK companies must strictly limit the proportion of parts manufactured overseas and prove the origin of their goods. In the case of electric vehicles, from 2027 onwards, the proportion of local parts must reach 55% in order to qualify for duty-free trade between the UK and EU.
The Committee calls for long-term commitments to increase funding for the development of next-generation batteries, to allow UK companies to gain an advantage for future manufacture of batteries and vehicles. Also, it suggests that the government shall widen the scope of battery innovation funding to include batteries for stationary applications on electricity grids and further develop renewable energy generation. In the medium to long term, there will be good investment opportunities under Ark's "New Energy" and "New Economy" investment themes.
As always, our Investor Relations team would be more than happy to help you with any queries. You could also follow our Twitter @WealthArk to receive products and services updates each week.
The views expressed in this update are not intended as an offer or solicitation for the purchase or sale of any investment or financial instrument. The views reflect the views of Ark Investment Management at the date of this document and, whilst the opinions stated are honestly held, they are not guaranteed and should not be relied upon and may be subject to change without notice. Investments entail risks. Past performance is not necessarily a guide to future performance. There is no guarantee that you will recover the amount of your original investment. The information contained in this update does not constitute investment advice and should not be used as the basis of any investment decision. Any references to specific securities or indices are included for the purposes of illustration only and should not be construed as a recommendation to either buy or sell these securities or invest in a particular sector. If you are in any doubt, please speak to us or your financial adviser as appropriate.
Issued by Ark Investment Management Ltd which is authorised and regulated by the Financial Conduct Authority.
© Ark Investment Management Ltd. Registered in England & Wales with the company number 09281759.