Contrary to expectations.. positive performance of global markets in the first half

Stock markets

Despite pessimism about the performance of global markets at the end of 2022 and expectations of a slowdown in global economies, the performance of major stock indices in advanced economies in the first half of 2023 was good, with the increase reaching 12 percent. Global markets added about $6 trillion to their value, supported by a strong rise in stocks of technology companies.

While more pain is expected for these stocks this year, according to estimates by financial analysts and global investment banks, shares of the largest technology companies have seen significant declines, especially in 2022, with market expectations of a hike in federal interest rates. Over two decades, central banks’ tightening of monetary policy has resulted in him raising interest rates to counter inflation, and at times stock price declines of more than 60 percent, as happened at Facebook’s parent company, Meta.

Economists, in exclusive reports on the “Sky News Arabia Economy” website, linked the continued pace of performance of technology stocks in the second half of the year to the need for good data for technology sector companies for the second quarter of 2023. If the profits are higher than expected by his companies, it indicates that the markets may witness a correction process for the shares of this sector.

On the other hand, experts point out that the markets may generally witness poor performance in the second half of the year for two reasons.Interest, on the part of the investor, this is considered a negative trend for the financial markets.

In turn, Mazen Salhab, chief market strategist at BDSwiss MENA, says, “The performance of major stock indices in advanced economies in the first half of 2023 was very significant, while many expected the performance to be weak due to continued interest rate hikes in the United States.” The US reached 5.25 percent, the highest since the 2007/2008 global financial crisis years.

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Performance of major markets in numbers

In an interview with “Sky News Arabia Economy”, Salhab explains the performance of the main global markets in the first half of 2023 in numbers according to the following:

• The S&P 500 index rose 16.2 percent.
• The Dow Jones rose 3.88 percent.
• The Nasdaq index rallied as much as 40 percent, with four straight months of gains, the longest consecutive monthly winning streak in three years.
• On the other side of the Atlantic, the picture looks positive, albeit a little weaker, as the British FTSE 100 index rose 1.14 percent.
• Germany’s DAX index gained 15.29 percent, nearing its all-time highs and the best consecutive gain in two years.
• In Asia, the Nikkei 225 index rose 26.2 percent in Tokyo, hitting its highest level in 33 years, as Japan benefited from tens of billions in foreign capital inflows in its best consecutive wave of gains in three years. In the past six months, the dollar has been driven by better valuations than the US, particularly in terms of income, in equities, dividend yields and market value, which has not been inflated, as has happened in the US.
• The U.S. dollar index fell 1.18 percent in June, after falling 0.55 percent in the first half to push it into the red zone, but it has gained 0.7 percent in the past three months.
• As US futures contracts are still up 5.9 percent since the start of the year, Brent crude has lost 12.6 percent, and WTI has lost 10.28 percent of its value, and we can’t forget commodities, chief among them gold. percent.

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Asked about the factors that affected the performance of the markets and the factors that made them contradict their pessimistic expectations this year, BDSwiss MENA’s chief market strategist replied, “Inflation has been gradually decreasing globally since the end of last year. In addition to the lack of contraction of the US economy in the first quarter of this year.” In contrast, China’s economy grew 2.2 percent quarter-on-quarter and Japan’s 0.7 percent, which reached 2 percent growth after the last revision.In the same period, that prompted markets to assume interest rates would start to be phased out, so we’ve seen strong gains in stocks over the past three months, as interest rate hikes generally don’t favor stocks. Historically.”

At the same time, the US labor market remained strong, unemployment did not exceed 3.7 percent, and the employment rate reached 314,000 this year. This resilience in U.S. consumer confidence, a lack of contraction in spending, and a decline in deficit production and goods, despite a decline in wages, gave stocks a strong edge.

For his part, Ali Hammoudi, CEO and Chief Investment Officer of ATA Global Horizons, in his interview with “Economy Sky News Arabia” said, “Despite being very pessimistic about the performance of the global markets at the end of last year and expectations about the recession. In the world economies, especially the developed ones, and the stocks are significant. collapse.” Banks, which we haven’t seen since the collapse of Lehman Brothers in 2008, but the first half of 2023 ended well with the markets performing well. It reached 12 percent of the world markets, which added 6 trillion dollars to their value in 6 months, and we do not forget that the Japanese Nikkei index had a good performance that it has not seen in 10 years, and the main reason for the rise in stocks, especially in the United States, is the lack of GPT chat technology, technology and artificial intelligence stocks. is due to

Tariq Al-Rifai, CEO of the Quorum Center for Strategic Studies, agrees that the technology sector has had the biggest impact on the good performance of global markets in the first half of this year compared to the previous year. The correction since the end of 2021 indicates that the Nasdaq index has seen a decline. Especially in 2022 and then, at the beginning of 2023, it has seen a strong recovery, but it has not yet reached the peak it reached in December 2021.

The strong performance of the German DAX index pointed to the strong performance of the French CAC index despite the energy crisis facing Germany, as well as the French CAC index reaching a record high despite the demonstrations in France. The Japanese Nikkei index outperformed global markets.

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Market expectations for the second half of 2023

On experts’ expectations for the performance of global markets in the second half of the year, the CEO of Quorum Center for Strategic Studies said, “If the whole story in the first half of the year is the recovery of the technology sector, but the question is… will this performance continue until the end of the year?” The answer is simply that the sector will see continued growth, but historically the third and fourth quarters of the year have seen fluctuations in financial markets. This means that we can see a weak performance of sectors that saw a strong performance in the first half, and we do not forget that the US Federal Reserve and other central banks are determined to continue raising interest rates, which is considered a negative trend for the financial markets from the investor’s point of view, that is, it reduces the confidence of investors that the markets will continue to increase. .

Ali Al-Hamoudi, CEO and Chief Investment Officer of ATA Global Horizons, said in response to his expectations for the performance of the markets in the second half, “Technology and artificial intelligence stocks to justify their rise in the second period. Halfway through the year, this should translate into good data for these companies in the second quarter.” , which means that if its earnings are lower than the markets expected, we may see a correction in technology and artificial intelligence stocks, and we may see a decline in prices in the second half.

The second half will focus on China’s economic and industrial performance, i.e. the growth of the Chinese economy, which was weak in the first half, and all eyes will be on the industrial data released from China. According to Hamodi, the second half will focus on China and corporate profits, in addition to the influence of geopolitical factors, the paths may determine many.

The impact of the artificial intelligence explosion

As for BDSwiss MENA, Mazen Salhab, head of market strategy, he points out that the strong rise in stocks of technology companies, especially due to the impact of artificial intelligence developments in recent months, may slow down in the second half. 2023, but without reducing its share, such technology is preferred as a long-term investment and is not linked to seasonal factors, directly through the shares of companies that work and develop these technologies or indirectly through giant technology companies that have more than one product.

Salhab explains, “The performance of assets cannot be predicted as major stock indices were higher in 2023, but taking into account the recent interest-hike cycle, cash assets denominated in US dollars have benefited. Since March 2022, interest rate hikes have risen 2.7 percent, but This momentum appears to have been slowed recently by the rise of other major currencies. Developed markets also gained, but bonds overall fell 3.7 percent. For example, commodities also lost 11.4 percent, when performance was different from the 2015-2018 and earlier 2004-2006 rate-hiking cycles. No provision guarantees future performance based on summary or past comparisons of performance of all assets.

Salhab believes there will be another rate hike in the U.S. in the second half of 2023, and it won’t stop until the U.S. labor market slows down, showing more flexibility, and the central bank’s monetary policy continues to adjust. If it doesn’t say so, it will generate bond returns, especially short ones. Three months, one month and six months higher without a sharp decline or strong correction. On the other hand, with US short-term inflation now pegged at 4 percent, yields above 5 percent (currently above 5.3 percent on three-, 6-, and 12-month bonds) make gold an attractive short-term, not long-term investment. That said, the current summer, which could be a hot one, as we are not surprised to see gold fall to $1880 an ounce, a decline equivalent to roughly 1.5 percent, with our belief that gold has investment value in the medium to long term.

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