Global equities had a volatile start to August. Japanese stocks were at the epicentre of the volatility after a strong run in the first half of 2024. By mid-July, Japan’s markets were at all-time highs due in part to a return of international investors. The first three business days of August saw stocks fall by around 20% and then gain around 10% in a steep rally.
The two main triggers for the volatility in the Japanese market were last week’s surprise interest rate increase by the Bank of Japan, which led to a strong rally in the yen, and renewed concerns over an impending US recession.
Japanese stocks are now essentially back at the level where they began 2024, having lost all the gains since the start of the year.
In the US, the tech-heavy NASDAQ fell by 3.4% in the last week of July. Since its all-time high on 11 July, the index had declined by more than 10% – the market’s definition of a correction. Most tech stocks, which had driven the rally in US stocks in the first half, delivered good results during the latest earnings reporting season, but failed to meet the sky-high expectations of investors nervous about whether heavy spending on artificial intelligence will ultimately be profitable.
Chinese stocks had slightly negative returns in the first half as investors remained on the sidelines, perhaps awaiting more monetary and fiscal support from Beijing. There is some doubt as to whether China’s economy will hit the annual growth target for 2024 of about 5%. We expect policymakers to continue the trend of more aggressive policy measures to achieve the target.
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