International markets enjoyed a good August, despite the continued weight of trade tensions. Strong US corporate earnings and an expectation that the Fed will cut rates in September also helped sentiment.

Despite a pull-back into the Labour Day long weekend, US markets closed the month firmer as the S&P 500 edged up by 1.9%, the Dow Jones up 3.2% and the Nasdaq rose by 1.6%, recording its fifth month of gains. On the US economic front, headline inflation for July (CPI) remained constant at 2.7% YoY, unchanged from the June number, while Core CPI, which excludes energy and food, climbed 3.1% YoY compared to the June print of 2.9% YoY. Fed Chairman Powel commented at the Jackson Hole Symposium that the US may need to cut rates in support of the economy as the US job market is in a fragile state. Note that the FED has kept rates unchanged for eight months.

Corporate earnings continue to surprise to the upside, with margin resilience across sectors especially in tech and consumer discretionary. Credit growth remains healthy, though moderating, as tighter bank lending is offset by capital markets activity for high-quality borrowers. The Fed's dovish shift and ongoing fiscal support (via infrastructure and industrial policy) are aiding sentiment. An easing policy environment is expected, which, combined with macro stability, creates a constructive, though late-cycle, environment for U.S. equities. U.S. equity valuations remain elevated, with the S&P 500 trading at 22.0x forward earnings. A sharp disparity remains between the top ten stocks and the rest of the index, highlighting growing concentration risks. The rally is technically sound; however, investor positioning remains concentrated in the mega-cap technology sector. Fund flows show some rotation into cyclicals and Al themes, while small caps and value remain under-owned.

European markets experienced a challenging end to August as political uncertainty in France and trade uncertainty in the EU bloc weighed. The Dax closed the month lower by 0.7%, and the Cac by 0.9%. Eurozone headline inflation for July printed at 2.0%, unchanged from June and remains in line with the ECB’s inflation target of 2.0%, while core inflation for the region also printed unchanged at 2.3% YoY.

Eurozone growth remains weak and uneven, with modest stabilisation during 2025 driven by real wage gains, lower energy costs, and improving tourism in Southern Europe. However, structural challenges, tepid consumer demand, and poor external demand continue to weigh on the outlook. European earnings revisions remain net negative while credit growth is subdued amid tighter financial conditions, weak capital expenditure, and cautious corporate investment behaviour, signalling a mid-to-late cycle environment. Fiscal policy support is constrained by the reimposition of EU budget rules, limiting flexibility despite growing needs for green and defence spending. The lack of bold policy stimulus curbs upside potential.

European equities are relatively cheap (13 - 14x forward P/E vs. 22x in the U.S.), with lower ROE, sector composition, and under representation in growth areas diminishing their appeal. Investor positioning remains neutral to underweight, with global allocators back to favouring U.S. and Japanese equities over Europe due to the latter’s underperformance on a relative basis with deteriorating technicals, negative earnings momentum, and lacklustre fund flows.

The UK market managed a marginal climb in the FTSE 100 of 0.6% as bank counters pulled back at the tail end of the month on fears that a new tax on their profits might start to weigh. UK inflation printed at a higher-than-expected level of 3.8% YoY, compared to June’s 3.6%, with core inflation rising 3.8% YoY compared to June’s 3.7%. The BoE maintained a cautious outlook in August amid continued US trade pressures, and with inflation fuelled by energy and food hitting 3.6%, the MPC voted in favour of cutting the bank rate to 4% from 4.25%. The MPC stressed that a cautious path for rate cuts is required to support the weak economic growth and softer labour markets against pricing pressures and stubborn wage demands.

Asian markets had a strong August as the softer Chinese economy primed investor hopes that the government will add more bailout measures to stimulate the economy. The Shanghai Composite ended the month higher by 8%, and the Han Seng by 1.2% as China focussed on efforts to promote growth in local chip production. On the economics front, retail sales in July disappointed, printing at 3.7% versus the 4.8% June number, with depressed consumer sentiment, and no sustained growth in consumer spending impacting. Manufacturing PMI in China for August rose to 49.4 compared to the July print of 49.3, while non-manufacturing PMI expanded to 50.3 from 50.1 the previous month.

FY2025 emerging market (EM) earnings per share growth is expected at +15-16% YoY, led by EM Asia at ~19% (India, Korea, Taiwan, Indonesia), EMEA at ~11% (Saudi, UAE, Poland), and LatAm at ~5% (moderate due to foreign exchange volatility and trade policy impacts). Positive earnings revisions continue, with Tech, Financials, and Commodities leading improvements. EM equities continue to trade at ~11.9x forward P/E, maintaining a ~30% discount to developed market peers (S&P 500 ~22x, Europe ~14.0x). This persistent valuation gap highlights long-term opportunity for patient investors while recognising near-term volatility.

In Japan, the Nikkei ended the month higher by 4.0%, with headline inflation for July declining to 3.1% YoY compared to the June print of 3.3%, reaching its lowest level since 2024. Inflation is still above the BoJ target rate of 2%. Industrial production in July also shrank more than anticipated, while like China, retail sales also disappointed.

Japan's 2025 real GDP growth is projected at 0.8%, slightly lower due to soft exports and subdued capital expenditure amid global trade uncertainty. Nonetheless, domestic demand remains resilient, underpinned by 5.3% base wage increases, stable employment, and easing financial conditions. The yen has stabilised, and equity market performance is increasingly driven by underlying earnings strength rather than currency moves. EPS growth is expected to hold at 5.5 - 6.0%, with robust contributions from financials, insurance, and IT services balancing ongoing weakness in autos and machinery. The equity market is shifting toward domestically orientated drivers, supported by strong wage gains, solid household finances, and rising consumption in durables, housing, and services. Valuations remain compelling, with the market trading at ~14x forward earnings, below its historical average and at a 30% discount to the US and 15% to Europe. Shareholder returns exceed 3.5%, supported by rising buybacks and dividends, reflecting stronger capital discipline and profitability. Structural reforms continue to gain traction, with improvements in return on equity, reductions in cross-shareholdings, and enhanced governance practices. The market is now earnings-led, with positive revision trends and rising domestic and foreign investor interest. Low foreign ownership highlights ongoing re-rating potential within global allocations.

South Africa

In South Africa, the ALSI continued its sixth consecutive month of gains, ending August higher by 3.4% with gold and platinum in the vanguard. Resources were the best performing sector, up 11.6%, followed by property up by 2.8%, industrials higher by 1.2% and financials up by 1.0%.

Some selected outperforming shares for August were Curro Holdings, up 33.7% on the back of a R7.2bln buy-out offer from Jannie Mouton, Grindrod (+32.3%), DRDGold (+32.3%), Goldfields (+31.5%), Sasol (+27.2%), AngloGold (+19.4%) and Pan African Resources (+16.4%).

Selected shares that underperformed were Telkom (-15.2%), Truworths (-14.9%), SSW (-13.1%), Foschini (-11.5%) and Aspen (-9.7%).