Market update: Second quarter 2023

Last quarter brought positive investment returns for the asset classes: equities and corporate bonds.

Global equity investments experienced the highest return: +7%. Bond markets took a pass; the return on government bonds in euros was 0%.

Central banks seem to be getting inflation in check. Savings rates are moving higher.

Looking back on Q2: moderate growth, interest rates slightly higher and inflation in check.

Last quarter was relatively quiet in financial markets. Central banks are keeping short-term interest rates high to keep inflation in check. In the euro zone, 3-month interest rates are rising, up 0.65% from last quarter, to a level of 3.4%. These higher short-term interest rates are seeping into savings accounts and money market funds.

Bond markets are anticipating contained inflation and stable higher long-term interest rates. Bonds suffered from slightly higher long-term interest rates, pushing the quarterly yield to 0%.

Corporate profitability showed moderate growth, and combined with interest rate expectations produced positive equity returns.

In particular, we are seeing share price increases from companies betting on growth from artificial intelligence (AI for short), such as IT companies and computer chip makers.

Emerging market equities lagged behind developed markets. Because of rising tensions between China and Taiwan, investors see higher risk in this, and that translates into lower prices.

These two equity markets have a weighting of about 30% and 15% of the emerging market equity index, respectively, so together about 45%, and thus dominate this index. Therefore, equity investments in emerging markets are sensitive to this geopolitical risk.

The equity investments that Vive holds for you in your portfolio consist of 80% stocks of large publicly traded companies in developed markets, 10% stocks of smaller publicly traded companies in developed markets, and 10% stocks of publicly traded companies in emerging markets.

This way we spread the risk; the overall result on equities thus came to about 6%.

Best fund performance in Q2:


‍NorthernTrust World Custom ESG Equity Index Fund +6.66%

Last quarter brought positive investment returns for the equity and corporate bond asset classes.

Short-term interest rates rose so that the return for money market funds was again slightly higher than last quarter.

Slightly higher long-term interest rates depressed the performance of bonds and, to a lesser extent, corporate bonds.

Stable interest rates at higher levels, what does that mean? 

If inflation is kept in check, thereby preventing a wage-price spiral, the economy will be able to show moderate growth.

Higher short-term interest rates are going to hurt companies that are heavily financed with short-term debt; their profitability and solvency may be hit. 

For equities, the picture is mixed. The question can be asked whether the price rally of AI-related stocks is hype, like the Internet bubble of 1997 to 2001. Overall, the outlook is muted.

Bonds will yield higher returns with stable interest rates at higher levels, as will money market funds. Those with money in savings accounts will notice that savings rates have moved higher.

What does all this mean for my plans?

Higher savings rates might make you question whether you shouldn't sell some of your investments and put them in a savings account.

However, higher interest rates have a stronger effect on money market investments, and over time on corporate and bond investments, than on the savings rate you receive from your bank.

Furthermore, we expect stock prices to already discount future higher interest rates, in other words, investors to focus on future profits net of higher interest margins.    

Therefore, don't let the market disrupt your long-term goals. Vive's investment strategies take into account the risks acceptable to your plan.

See in the app how you have set your risk level for your investment plans. Movements in financial markets are no reason to adjust your risk level. A change in your personal situation can be. 

If you adjust your risk level such that it requires adjusting your current investment portfolio, Vive automatically takes care of that.

And consistently sticking to your investment strategy with well-diversified portfolios is the key to long-term success.

Good to know

Expressions of Vive are compiled to inform and entertain. The content should not be considered financial advice. Wealth management has risks.