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Spiral Staircase

Ark Review of the Month

July 2022

Global Market


July witnessed a bounce back in the stock market. With the growth stocks rising 11.5% and being one of the best performing asset classes, US S&P 500 Index increased 9.2% thanks to its exposure to growth stocks. MSCI Europe ex-UK Index increased by 7.0% and UK FTSE All-Share increased by 4.4%. However, the MSCI Emerging Market index and MSCI Asia ex-Japan Index decreased by 0.2% and 1.1% respectively due to China's real estate market plunge.


Prices of global major sovereign bonds also increased over the past month. UK Gilt price increased by 2.8% in July but still decreased 12.4% year-to-date. US Treasury price increased by 1.6% this month with a 7.7% drop so far this year.


Government bonds yield as of 29 July:

UK Gilt 10 Year @1.86%
US Treasury 10 Year @2.65%
German Bund 10 Year @0.81%

UK Market

Consumer prices continue to accelerate in the UK, with inflation in CPI terms reaching a new high of 9.4% in June 2022, higher than most forecasts. Average wages in the UK are also rising, however, are unable to keep up with the high level of inflation. In the three months from March to May 2022, inflation-adjusted average wages fell by 2.8% compared to the previous year, the sharpest fall since records began in 2000. The Bank of England's recently released Financial Stability Report shows that the outlook for the UK economy is "very uncertain" as global economic conditions deteriorate. The report predicts that unemployment may start rising in 2023, although the labour market will remain relatively healthy in the short term.


The next Bank of England's Monetary Policy Committee meeting will be held on 4 August. Governor Andrew Bailey said that a 0.5 percentage point rise in base rate is one of the options on the table to help lower inflation, even if this poses a risk of slowing economic growth. The UK's GDP increased by 0.5% in May due to the positive impact of the Queen's Platinum Jubilee celebrations.

Ark Insights

Soaring inflation also threatens public finances, with around a quarter of the UK government's debt linked to the Retail Price Index RPI, leading to a recent surge in the government's interest payments, which reached a record high of £19.4 billion in June 2022. The Institute for Fiscal Studies said that while the figure for June was "eye-wateringly high", it was "driven by short-term and seasonal factors". Interest payments on the debt are expected to fall back to around £4 billion in July.


On July 7, the UK Office for Budget Responsibility (OBR) released its Fiscal Risk and Sustainability report. The report warns that government debt will fall in the medium term under current policies, but will inevitably continue to rise in the long term. the OBR predicts that government debt could exceed 250% of GDP in 50 years, well above the current 96%. This is due to a number of long-term pressures, such as an ageing population and the loss of car tax revenue due to the spread of electric vehicles, to name but a few. A debt level of this size would result in interest payments of around 9% of GDP in the long term, well above the typical UK level of 2% for many years.


Investors may find it difficult for traditional investments to deliver results to one's satisfaction under inflation and we need to explore more investment options. As the UK investment management firm Ruffer Investment stated in its July Investment Review, "The victims of inflation are the unimaginative rich, and the unemployed poor." One of the main characteristics of inflation is that it promotes social mobility. Whereas wages as a proportion of business spending have fallen to a relatively low level over the past decade, today's price hikes push workers and unions to strive for higher incomes. When we look at historical data, they have a fair chance to succeed. Real wages for those employed always rise quickly in periods of inflation. Capital pays its due to labour.


As always, our Investor Relations team would be more than happy to help you with any queries. 


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.

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