After a broadly negative June, most major equity indices returned to
positive territory during July. However, investor sentiment was dampened by
mounting speculation over the outlook for China – and specifically concerns
over its possible impact on the global economy – while share-price volatility
during the month was stoked by ongoing unrest in Egypt and political divisions
in Portugal.

The US economy achieved better-than-expected growth during the second
quarter, posting an annualised rate of expansion of 1.7%. The Dow Jones
Industrial Average index rose 4% over July as a whole and, following
reassurance from policymakers stimulus measures will remain in place for the
time being, also hit a new high during the month.

UK investors were cheered by fresh signals the UK economy might finally
be on the mend and the FTSE 100 index rose 6.5% during July. According to the
Investment Management Association, the UK All Companies sector surged from its
position as the worst seller in May to the fourth best-selling fund grouping in
June. The sector experienced its highest net retail sales since November 2008
and appeared among the top five best-selling sectors for the first time in almost
two years.

During the month, investor sentiment towards the Eurozone was undermined
by a growing political crisis in Portugal as cracks developed within the ruling
coalition party. The country’s PSI20 index rose 3% during June although it has
fallen 8.4% over the past three months.

Manufacturing output in the Eurozone hit its highest level for 18 months
during July, fuelling hopes the region’s prolonged downturn is on the wane.
However, encouraging signals from the manufacturing and services sectors –
particularly in Germany – were tempered by continuing weakness in the labour
market. Germany’s Dax index rose 4% over July.

China’s economic growth continued its slowdown during the second quarter
of 2013 and investor sentiment was further hit by disappointing trading and
manufacturing data . Chinese authorities announced a package of new measures
aimed at boosting economic growth. The Shanghai Composite index rose 0.7%.

Elsewhere in Asia, the Bank of Japan released a broadly encouraging
assessment of the domestic economy, highlighting a recovery in overseas
economies and resilient domestic demand. Meanwhile, the Tankan sentiment survey
showed a revival in confidence among manufacturers.