Latest investment update

Global stock markets rose in August, helped by continued economic growth and strong company results. Bond markets had a more difficult month as investors focused on inflation, government borrowing and the demand for funding linked to artificial intelligence.

Equities around the world gained during the month. Technology companies remained an important source of growth, while materials, energy and smaller companies also performed well. This meant gains were spread across a wider range of the market.

Strong company results helped equities. Demand linked to artificial intelligence continued to support technology and related industries. AI growth also requires major spending on data centres, power capacity and digital infrastructure, increasing the demand for funding.

Government bond prices fell in parts of the market during August, pushing yields higher. Investors focused on persistent inflation, energy costs, fiscal pressures and the volume of new government debt coming to market.

Higher yields have improved the income available from newly issued bonds compared with much of the period following the global financial crisis. Bonds may offer less protection against equity market weakness when inflation is the principal concern, but they can still provide income, diversification and a degree of portfolio stability.

Business surveys suggested that major economies continued to grow in August, but we would expect the pace to slow down going forward.

Slower growth can remain supportive for equity markets when corporate earnings continue to expand. Inflation stayed above central bank targets in several economies, although underlying price pressures did not accelerate materially. Energy prices and geopolitical tensions remained important risks because they could raise costs and complicate the path for monetary policy.

August demonstrated that equities can advance, even as bond yields rise, provided economic activity and corporate earnings remain supportive. Higher yields have also improved prospective income from bonds, although investors may continue to experience short-term price volatility.

The central message for investors is to maintain a diversified portfolio. Equities provide exposure to economic growth and corporate earnings, while bonds can contribute income and diversification. Allocating across regions and asset classes can reduce reliance on a single market outcome, although central bank decisions, inflation data and fiscal developments may still drive periods of volatility.