Market Commentary Quarter 2 2023

Download PDF

The second quarter of 2023 mirrored the first quarter of the year in terms of turbulence. April returned positive results across the globe, which were somewhat reversed in May. A generally positive June helped to deliver growth for the quarter in most regions except for the UK.

Throughout the quarter, growth continued to outperform value. As inflation continues to remain stubborn, central banks in the UK and Europe continued to raise interest rates, whilst the Federal Reserve (FED) paused in June. Markets are not expecting this to be the end of the interest rate hikes, with another 1% expected in the UK, and at least 2 more rate rises anticipated in the US.


The UK unfortunately saw losses of 0.31% for the second quarter of 2023 (FTSE100). The Purchasing Managers Index (PMI) fell marginally from 47 to 46.5 in June, further demonstrating signs of contraction in the manufacturing sector (a value above 50 indicates growth). Conversely, the services PMI remained above 50, but had reduced from the prior month. The Bank of England (BoE) continued to increase interest rates, and surprised markets with a higher than expected increase of 0.5% in June. This followed inflation rate results which showed that inflation was not yet decreasing sufficiently, with the latest Consumer Price Index (CPI) remaining at 8.7%. Whilst interest rates are currently at 5%, the market is expecting a peak rate of around 6% in 2024.

Europe ex-UK

European stocks fared well during Q2 of 2023, with the EURO STOXX 50 returning 4.25% over the period. Following the turbulence of the banking sector in Q1, the financial sector has performed well alongside technology, thanks to the growth of AI. Inflation in the Euro area decreased in the period from 6.1% down to 5.5% however, the European Central Bank (ECB) decided to continue to increase interest rates. In May, interest rates were increased to 3.75%, with a further 0.25% added in June.


The US had a positive quarter, with the S&P 500 returning 8.74%; this was largely led by technology companies providing strong results following the development of AI, whereas energy and utilities struggled. The FED raised interest rates in May but decided to pause rate hikes in June following a decrease in inflation month-on-month. Currently, markets are not expecting this to be the end of the rate hikes, with two more rises expected, but the end of these increases is likely to be near.


The Japanese market hit a 33-year high in May and, in local currency, the Japanese markets had a successful second quarter with returns reaching 15.6% (MSCI Japan). Meanwhile, the Yen continued to weaken. The Bank of Japan had its second meeting under the new governor and continued with its yield curve control.

Emerging Markets/Asia

Following a strong reopening of China following the COVID crisis, Chinese equities have struggled this quarter, due to a lack of demand both locally and globally. This could be further impacted by geopolitical tensions as EU governments place limitations on the exports of components for high-tech machinery. Hong Kong and Malaysia also suffered this quarter. On the other hand, India had a positive quarter, alongside Taiwan. India’s growth was led by a strong earnings season which showed steadiness in the economy, whilst Taiwan is making gains from the positive sentiment towards AI, leading to gains in technology stocks.


Whilst inflation remains a stubborn force, it is likely that the end of the interest rate hikes is relatively near as central banks weigh inflation against a potential recession. Whilst most economies have managed to avoid contraction thus far, the delayed impact of increased interest rates may yet be seen fully, and it is likely that there will be economic slowdown within the next 12-18 months.

We position our portfolios to cater for these complex circumstances and make tactical decisions to ensure the best outcome for our investors. Whilst there is likely to be turbulence in the short-term markets as bonds and equities demonstrate conflicting scenarios, we believe in our long-term positioning. We continue to look for opportunities as they arise, whilst maintaining our investment philosophy to provide you with the best results within our carefully risk-managed approach.


Flying Colours Investment Management aims to make investment management more accessible and transparent for clients. Our roots in investing money on behalf of our clients, and our motivation lies in a genuine desire to make a difference to people’s futures and maximising the potential for solid long-term returns.

Let's start a conversation


By submitting your details you agree to our Privacy Policy and allow us to contact you.