Here is a digest of the past global financial quarter, by the Investment Team.

A quick summary:

  • Globally, a quarter of the world population has received at least one COVID vaccine.
  • UK equity markets have performed well.
  • In the US, the main blue-chip index reached an all-time high.
  • A positive quarter on balance for Europe.
  • Negative returns in the two major Japanese benchmarks and a controversial Olympics.
  • In Asia Pacific, the impact of the semiconductor shortage continues.
  • Investor optimism has increased in emerging markets.
  • We update on how our portfolios have fared.


Any financial analysis must be seen through the lens of the pandemic, and key to economies reopening is the pace of vaccination. The UK’s swift vaccine uptake means that over 50% of the population is now fully vaccinated against COVID 1. Many scientists are worried about the consequences of recent lockdown lifts, such as not wearing face masks indoors. However, Prime Minister Boris Johnson emphasises the importance of needing to “learn to live with the virus” 2.

Globally, a quarter of the world population has received at least one dose of the COVID vaccine but only 1% of people in low-income countries have received at least one dose 3. At the G7 conference in Cornwall this June, the seven world-leading countries promised one billion COVID vaccine doses for poorer nations 4. But is this enough? Health and anti-poverty campaigners argue that more help is needed to increase the number of doses and distribution, as well as to relax intellectual property rights so developing counties can produce the vaccine themselves 5.

Around the globe


Equity markets in the UK performed well over the second quarter (Q2), with much of this performance coming from cyclical sectors – those affected by economic cycles (such as car manufacture). Global fund managers are increasingly backing UK companies, resulting in the UK being described as an ‘overweight’ (that is, disproportionately focused on) for the first time since 2014. 6

In the bond markets, the 10-year gilt yield fell from 0.85% to 0.72%, suggesting that the optimistic sentiment in equity markets was waning. Bond yields move inversely to their price, so if yields are falling, prices are rising, which suggests there are more buyers than sellers. This move in the bond yield suggests investors are wary of the growth potential of equity markets as we move forward.


‘New all-time highs’ is becoming almost as widely used as ‘unprecedented’, as the main blue-chip index in the US, the S&P 500, reached yet another all-time high during the quarter. Meanwhile, tech stocks have risen 11.3%, now the second strongest performing sector 7. Those falling behind include consumer staples, which are less popular as the US economy has begun to reopen.

The 10-year Treasury yield fell by 0.29%, to 1.45% in the last quarter, amid worries of a slower recovery from the pandemic than initially thought and building inflationary pressures 8. However, this decline may be a positive for the stock market if investors can sell bonds for higher prices, in favour of stocks.

Despite worries over possible interest rate increases following the biggest year on year increase in inflation since June 1992, the Federal Government has signalled the first policy rate rise will not be implemented until 2023 9. For more on inflation, have a read of our earlier article.


European equities continued to build on a strong first quarter, growing by 7.1% in the second quarter, with the MSCI Europe ex-UK index now the strongest performing regional index in the first half of 2021 10. Helped by the accelerated vaccine rollout and the easing of COVID restrictions, consumer demand and sentiment has improved as the population head back to bars, restaurants, offices, and even tourist destinations 11. Growth forecasts for the Euro area have now been upgraded by European Central Bank (ECB) and others, with projections of 4.6% growth in 2021, compared to the 4.0% projected in March 12.

Unlike the previous quarter, defensive assets such as consumer staples and real estate were among the top performers, with information technology also finishing strong. However, concerns over inflation remain. Increased production costs, ranging from raw materials to the spike in shipping costs, all add to this pressure, and the question is whether this is passed on to consumers.

Overall, it has been a positive quarter for Europe. The outlook looks promising so long as the vaccination continues to prove its effectiveness, and the ECB manages to balance stimulus packages against the risk of inflation. Some big events are also in the diary for the third quarter, namely the ECB monetary policy meeting at the end of the month, where we may see a significant shift following the recent change in the inflation target to 2%. We also have the German elections in September, where Angela Merkel will step down from her position as chancellor after over 15 years in the role 13.


Japan has suffered the repercussions of a tentative vaccination roll-out, mired by additional domestic clinical trial requirements and zero domestic production, which ultimately led to a delayed lifting of the first state of emergency measures. The slow progress weighed heavily on the major equity indices despite Japan’s relatively low infection and death rate 14.

Overall, this led to negative returns in the two major Japanese benchmarks – TOPIX and Nikkei 225 15. Recently, the threat of a rapidly spreading Delta variant and rising cases spurred the government to announce the second state of emergency in the capital of Tokyo 16.

The Olympic Games once brought the promise of increased infrastructure, tourism and importantly, the hope of higher inflation, but has become the subject of recent dispute. Prime Minister Suga has needed to balance rising cases, economic prosperity and civil discontent, with 83% of Japanese citizens wanting the already delayed Games to be cancelled or postponed 17.

Industrial production in May failed to hit analysts’ expectations and manufacturing growth shows signs of slowing 18. This disappointing economic data reflects the supply constraints as Japanese auto manufacturers struggle with a global shortage of semiconductors and increased raw material prices hampering Japan’s steel producers. Alas, not even increasing price pressures from supply chains can stave off mild deflation, yet consensus estimates point towards a more hopeful third and fourth quarter, as supply constraints ease and the vaccination rollout continues 19.

Asia Pacific

The MSCI Asia Pacific Ex-Japan index continued with steady growth in Q2, however many of the vaccination programs in the region still lag the global rate. This, along with the resurgence of COVID cases, curbed investor sentiment towards the end of the quarter 20, meaning that the record growth rate from Q1 is unlikely to be matched, and the economy enters a more stable phase 21.

China’s manufacturing Purchasing Manager’s Index, an indicator of economic trends in the sector, fell to a four-month low in June with similar factors as those affecting manufacture in Japan, such as the semiconductor shortage 22.

China-Taiwan tensions also increased last month, with military exercises carried out by the US and Japan due to concerns over the China’s assertive activity. Despite this, Taiwan was one of the best-performing markets in the index.

The outlook for Q3 hinges heavily on the region’s vaccination programs. With cases rising rapidly in countries such as South Korea and Vietnam, lockdowns will perhaps become the norm again.

Emerging markets

Emerging market equities have seen positive returns over the second quarter as investor optimism has increased, commodity prices have soared, and value stocks continue to be in favour. They have gained due to the increase in demand for commodities, such as energy, since the reopening of major economies. For context, the MSCI Emerging Markets Index has a 14% exposure to commodities compared to the MSCI World Index at 8% 23 . However, commodities do not dominate the MSCI Emerging Markets Index like they used to. Today, it is mostly made up of companies in China, Taiwan, South Korea, and India 24 producing IT and semiconductor products. These value stocks have continued to fare well during the economic recovery, with the MSCI Emerging Markets Value Index outperforming the MSCI Emerging Markets Growth Index for the third consecutive quarter 25.

Certain emerging market economies have remained a concern for investors, such as Chile and Peru, mostly due to political uncertainty. Overall, emerging markets should stand to gain as the US Dollar is expected to weaken, having risen over the last quarter, as economic recovery takes hold and if the inflationary period is transitory, as many predict 26.

How our portfolios fared

We have been pleased with the performance of our portfolios during this period. Our sustainable portfolios have performed particularly well, and we see investing in areas such as climate change as an area of growth for the long-term. Performance was particularly impressive, given the ‘nil weighting to commodities’ which was the best performing asset class over the quarter. Given the higher equity and growth alternative (property, infrastructure etc) exposure, higher risk models outperformed compared to those more defensively positioned.

Longer duration government bonds made a recovery after a tough first quarter, whilst our shorter duration sovereign credit remained flat throughout the period. Our alternative asset classes were amongst the top performers for the quarter and our property real estate investment trust, TR Property, continued its ascent after a difficult 2020, recording a 16.6% gain in the second quarter. Meanwhile, our commodity exposure lagged the broader asset class, with our physical gold allocation underperforming industrial commodities closely linked to the business cycle, such as raw materials.

Overall, it’s been a positive quarter financially in most cases, both around the globe and for Holden & Partners’ portfolios.

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Please note that any thresholds, allowances, percentage rates and tax legislation stated may change in the future. The content of this communication is for your general information and use only; it is not intended to address your particular requirements. This communication should not be deemed to be, or constitute, advice. You should not take any action without having spoken with your usual adviser.

The value of investments can fall as well as rise. You may not get back what you invest.

Past performance is not a reliable indicator of future results.













13. German election 2021 – POLITICO


15. Data collected from Morningstar, from 31/03/2021 – 30/06/2021, GBP, TOPIX -0.53%, Nikkei 225 -1.33%.












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