High-quality stocks performed well in July, bolstered by strong quarterly earnings numbers. Meanwhile, Chinese stocks dropped sharply after Beijing moved to ban education companies from making a profit. Bond yields continued to move down in the month, with the key 10-year Treasury rate easing from 1.4% to 1.2%. An optimist would say this was thanks to receding fears of inflation, while a pessimist would say it was on worries that the global economy would remain sluggish. A realist would say both are correct.


Customer-facing UK businesses had been anticipating a windfall from Freedom Day, but the boon was tempered by the “pingdemic” creating staff shortages and forcing customers to stay at home. This predominantly affected smaller companies, which tend to rely more on bricks-and-mortar stores and lack the resources that larger ones enjoy. Nevertheless, our flex-cap Free Spirit fund put in a good performance, beating the index to rise over 2%. We remain bullish on UK, where we see strong activity growth and attractive valuations.

Our UK Gilt fund rose 3% in July, a strong return for low-risk government bonds. Gilt performance hinges on market expectations of future interest rate changes; earlier in the year investors worried that inflation would force the Bank of England to raise rates faster than expected. However, those fears have eased since it looks likely that inflation will be transient and the post-Covid economy will need continued stimulus to keep the recovery on track.


US GDP growth rose to 6.5% in the second quarter, though fell short of Wall Street’s expectations. Below the surface, strong consumer spending was offset by weaker property investment. The figure nonetheless brings the American economy above its pre-pandemic level for the first time, and economists expect strong growth for the rest of 2021. The growth is good for our US index fund, which provides low-cost exposure to the entire US economy.

America’s five biggest tech companies (Apple, Microsoft, Amazon, Alphabet, and Facebook) reported blowout quarterly results. Their collective revenue surged more than one-third to $332 billion. The market reaction was mixed, however; investors worry that such high growth will be tough to maintain.


After playing catch up on vaccinations, Europe is now reopening too, delivering a boost to battered companies. However, the IMF projects that the Eurozone bloc will not recover to its pre-pandemic size until at least 2022; by comparison, China did so last year, the US by earlier this summer, and the UK should by the end of this year.

Despite the continent’s headwinds, our mid-cap Montanaro European fund was the best-performing fund across portfolios in July. The fund’s largest position is in Swedish roof box maker Thule, which jumped 20% on strong growth thanks to overseas sales.


India’s stock market hit a record high in July, after recovering from its deadly Covid wave in spring, but there are fears a third wave could be developing.

Billions were wiped from the value of Chinese stocks after a leaked memo suggested that the Communist Party would ban education companies from making a profit. Some “edutech” (education technology) stocks fell 60% within a few hours. The industry had boomed thanks to rising pressure from China’s competitive middle-class parents. The fallout spread to virtually all Chinese stocks, as investors worried about further diktats from Beijing. Our China fund, Matthews China, managed to outperform the Hang Seng index by 3% thanks to diversification across sectors.


Japan should be enjoying an economic bounce from the Olympics (during London 2012 the UK enjoyed its strongest quarterly growth for years) but the boost has been neutralised by spectator restrictions and a resurgent Covid wave.


The spread of the Delta variant could lead to a slower recovery in economies with lower vaccination rates, but the global rebound remains on track thanks to pent-up consumer demand and continued central bank support. Even though the fastest part of the recovery is behind us, we still believe stocks will deliver the best long term returns for investors who can absorb short term volatility.