Ark Review of the Month
Geopolitical risks remained under the spotlight in October, with tensions further escalated between Russia and Ukraine. The good news is that global supply chain constraints continued to ease. Europe has also taken further steps to minimise the impact of the energy crisis, mitigating the risk of a severe economic downturn.
Developed market equities delivered an overall return of 7% in October, with US S&P 500 Index up 8.1%, MSCI Europe ex-UK Index up 7.2%, Japan TOPIX up 5.1% and UK FTSE All-Share up 3.1%. Emerging markets, on the other hand, remained under downward pressure, with MSCI Emerging Markets Index down 3.1% and MSCI Asia ex-Japan Index down 6.1%.
Bond markets were also polarised. UK Gilt prices rose by 3.3%, German Bund prices fell by 0.4% and US Treasury prices fell by 1.4%. Global investment grade corporate bonds yield continues to increase, with prices falling by 0.3%.
Government bonds yield as of 31 October:
UK Gilt 10 Year @3.51%
US Treasury 10 Year @4.05%
German Bund 10 Year @2.14%
The recent UK economy is still characterised by weak growth, with GDP falling by 0.3% in June-August 2022 compared to the previous three months (March-May). Output in the services sector in June-August rose by 3.7% compared to the same period last year, while manufacturing output fell by 5.5%.
CPI inflation in September 2022 was 10.1%, up from 9.9% in August, setting another record. Rising food prices remain the major upward contributor to CPI inflation, while the continued decline in motor fuel prices stands as the most significant downward contributor.
Rishi Sunak became the UK's new Prime Minister in October while Jeremy Hunt was appointed the new Chancellor of the Exchequer. The new Chancellor has overturned most of his predecessor's tax cuts and plans to present a more restrained budget in mid-November. The news has boosted UK Gilt prices by 3% this month. The Sterling also jumped by 3.1% against the dollar.
On 3 November, the Bank of England's Monetary Policy Committee decided to raise the base rate by 0.75% to 3%, marking the eighth consecutive interest rate increase and the highest single rise in 33 years. If the Chancellor's November statement is also in a tightening direction as expected by the market, the harmonic fiscal and monetary policy may become more sufficient pulling the UK economy out of the downward cycle. In the short term, we have a reserved view on the traditional fixed income and equity investments and will continue to hold high-quality, highly liquid and inflation-linked assets.
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.
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