SPW MarketWatch: June 2023

  • Shunil Roy-Chaudhuri
  • 07 July 2023
  • 5 mins reading time

Source: FactSet, 4 July 2023. Figures are monthly total returns in local currencies for June 2023.

Confusion reigns in Russia

On Saturday 24 June, Russia’s Wagner paramilitary force marched from the Ukrainian frontline towards Moscow, and made its way to within 120 miles of the Russian capital almost completely unopposed. Wagner has played a key role in Russian incursions into eastern Ukraine regions since 2014.

Wagner leader and former convict Yevgeny Prigozhin had, in previous weeks, ranted against Sergei Shoigu, Russia’s defence minister, and Valery Gerasimov, commander of Russian forces in Ukraine. On 24 June, he switched from words to action.

Wagner turned back by the evening, having engaged in minimal armed conflict against the official Russian military. Meanwhile, Belarussian president Aleksandr Lukashenko brokered a deal that offered sanctuary to Prigozhin in Belarus.

Russia’s president Vladimir Putin declaimed Wagner as ‘internal traitors’ who had ‘allowed their personal interests to lead them to treason’. And he vowed: ‘Action will be taken.’ But no action seems to have materialised.

These events appear to have weakened Putin’s position, but the financial and economic implications are unclear. The march had little immediate impact on the markets, although oil rose by 4.5 percent in the month. Russia is a significant oil producer, although it faces oil sanctions from the US, UK and Europe.

UK equities flat at the half-year point

UK equities missed out on a global equities rally in the first half of 2023. The MSCI United Kingdom Equities index fell by 0.4 percent in the six months to 30 June. But the MSCI All Countries World Equities index for global equities rose by 12.5 percent during the same period. North American and Japanese equities rose by double digits during the six months (1).

The UK’s large exposure to energy companies partly drove this lacklustre performance, as these companies struggled with the falling price of oil in the period. But the UK stock market also features a significant number of companies that provide income through high dividend payouts. These must now compete with the rising income now available from UK government bonds. The UK stock market also lacks big technology firms, and these have helped drive up global stock markets, partly due to increased optimism over artificial intelligence (AI).

We currently uphold a neutral stance on UK equities, against a backdrop of rising UK interest and mortgage rates, but are cautious on European equities. We have an overall neutral stance on equities elsewhere, partly due to a resilient US service sector and to our belief that Japanese equities offer good value.

At Schroders Personal Wealth (SPW), one of our principles is investment diversification. In particular, we advocate the benefits of geographical diversification, of not just investing in one country. Our medium risk SPW Balanced Portfolio fund holds 21.3 percent exposure to US equities and just 13.4 percent exposure to UK equities (2). So this year’s faltering UK stock market has had only a limited impact on our multi-asset funds and portfolios and we’ve benefited from rising equities in other regions.

Defaults rise in US loan market

Defaults in higher risk US loans have gone up sharply so far in 2023, as rising US interest rates have impacted higher risk companies with variable borrowing costs.

According to analysis from Goldman Sachs, 18 debt defaults took place in the US loan market between January 1 and the end of May, totalling $21 billion (£16.6 billion). This exceeds, in both total value and number, the whole of 2021 and 2022 combined (3).

We note that rising rates have similarly impacted the default rates of higher risk (high yield) US corporate bonds. And we note that high-yield bond recovery rates, referring to the percentage of corporate debt that can be recovered by a lender, have fallen to historic lows.

Against this backdrop, we retain a neutral stance on US high yield bonds. But we uphold a positive stance on corporate bonds as a whole. This follows the US Senate’s approval, at the start of the month, of a deal between the White House and congressional Republicans on the US debt ceiling.


(1) FactSet, 3 July 2023.

(2) SPW Balanced Portfolio fund factsheet, May 2023.

(3), ‘US junk loan defaults surge as higher interest rates start to bite’, 13 June 2023.

Important information

Forecasts of future performance are not a reliable guide to actual results neither is past performance a guide to future returns.

The value of investments and the income from them can fall as well as rise and are not guaranteed. The investor might not get back their initial investment.

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