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Our views 22 August 2023

Investor sentiment takes hit but we may not yet be in dip-buying territory

5 min read

Equity markets continued to sell-off in a seasonally volatile August with worries about higher rates and growing concern over the Chinese economy impacting investor sentiment.

Our investor sentiment indicator, which started August in euphoric territory, has dropped from its highs but is yet to fall to depressed levels (chart 1) which suggests that it’s too early to buy the dip on sentiment grounds.

Chart 1: Investment sentiment not signalling a buy yet

Graphs shows investor sentiment from December 2020 to August 2023

Source: RLAM, Refinitiv DataStream

The US economy has been stronger than expected, continuing to defy market expectations (Atlanta’s Federal Reserve GDP now suggests nearly 6% growth in Q3, for example) with China’s reopening recovery in sharp contrast and more underwhelming (chart 2).

The prospect of higher rates continues to pose a recession risk as we still believe that monetary policy works but with a long, and variable, lag. However, a subdued Chinese economy could be a deflationary tailwind for the world, allowing inflation to cool without deep global recessions. Whether no global recession or a severe recession, both remain plausible future outcomes.

While we’re not buying the dip yet, our global growth indicator continues to improve and we are still positive on equities and negative on bonds but remain data dependent.

Chart 2: Citi US surprise has been positive while Citi China surprise has been negative

Graph shows economic surprise level of US, G10 and China Citi.

Source: Refinitiv DataStream as at 17/08/2023

Market summary

Global stocks witnessed a third consecutive week of declines, now more than 5% off their end of July peak, as data from China continued to disappoint while bond yields in the US and UK rose to their highest levels in 15 years. US stocks outperformed on strong data while China mainland shares made fresh year-to-date lows and Hong Kong shares fell into bear market territory. UK shares underperformed as the FTSE 100 fell for a sixth consecutive day. Brent fell and copper continued to slide amid risk-off.

Economics summary

US Q3 GDP nowcasts jumped, partly after stronger than expected hard data. China July hard data disappointed and the People’s Bank Of China cut rates. Re-accelerating UK wage growth and services inflation support additional Bank of England hiking, but the labour market looked less tight.


This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.