Global investment market review: August 2026

Heather Coulson, Head of Portfolio Management, discusses some of the key influences on markets in August.

During August 2026, the MSCI ACWI Index, a representative measure of global equities across developed and emerging markets, added 1.9% in sterling terms and 2.3% in US-dollar terms. Emerging markets and the US led regional returns. Growth- and value-oriented equity styles moved in lockstep. A broad mix of sectors performed well globally, including materials, technology, energy and consumer discretionary, while utilities trailed against a backdrop of rising rate expectations. Solid corporate earnings and resilient economic data helped to bolster markets. However, investors paid close attention to rising US-Iran tensions and government bond yields, with worries about higher-for-longer inflation raising expectations of near-term interest rate hikes. In fixed income, the ICE BofA Global Government Index shed 0.6% in sterling terms. Sterling was marginally up against the US dollar over the month.

Crude oil futures prices were volatile, and after declining early in the month, prices finished higher on worries of extended supply disruption through the Strait of Hormuz. European natural gas prices continued to climb on Liquified Natural Gas supply concerns.

The FTSE 100 Index, a commonly used representative benchmark of the UK’s largest equities, inched
0.2% higher. Meanwhile, the FTSE All Share Index was up 0.7%, as mid-cap stocks far outpaced their larger peers. The Bank of England’s Monetary Policy Committee (MPC) did not meet in August, though expectations increased for further rate hikes before year-end, in part due to another step up in annual UK inflation data as it moved from 2.6% in June to 2.9% in July. The unemployment rate remained at 4.9%. Economic activity as measured by the purchasing manager’s index (PMI) surveys, was broadly robust. The preliminary UK services PMI rose from 52.1 in July to 52.8 in August, helped by better demand conditions. Manufacturing also stayed in expansionary territory, although the preliminary PMI dipped from 51.9 to 51.5, in part due to geopolitical and inflationary uncertainty. A PMI reading above 50 indicates that activity is likely to be expanding.

The US S&P 500 Index added 1.9% in sterling terms and 2.7% in US-dollar terms, hitting new record highs during the month. The Nasdaq Composite Index, which has a growth focus, increased 3.2% in sterling terms and was 4.0% higher in dollar terms, despite a pullback towards month-end on remarks from the Federal Reserve (Fed). Relations between the US and Canada worsened as trade talks between the two countries broke down, leading to the tit-for-tat announcement of new tariffs. Several technology stocks stood up to broad scrutiny into AI-related results during earnings season, though the overall equity market advance was relatively well balanced across several sectors. The Fed did not hold a policy meeting during the month, but investors focused in on the annual Jackson Hole symposium, a major forum for international policymakers. The speech by the Fed Chair Kevin Warsh was generally seen as hawkish in tone, pushing stocks lower and bond yields higher in the aftermath. Annual inflation slowed from 3.5% in June to 3.4% in July as the impact from higher energy costs dissipated somewhat. Non-farm payrolls showed the US economy lost 23K jobs in July, down from a revised 20K of additions in June and below the 80K job gains predicted, given employment weakness in local government education and retail. The preliminary services PMI saw activity improve in July, while the early manufacturing PMI came in slightly lower on slower output and new orders.

The MSCI Europe ex UK Index was up 0.9% in sterling terms. By country, Ireland, Portugal and Germany made headway in local currencies, while France declined. The European Central Bank (ECB) did not have a policy meeting in August but minutes from July’s meeting signalled that further hikes could be possible given inflation risks. The ECB’s last hike came in June 2026. Annual inflation in the euro area edged slightly higher in July, coming in at 2.9%. August’s preliminary eurozone manufacturing PMI improved, stepping up to 52.7 from 51.9, helped by strength in German production and a return to expansionary territory in the French manufacturing sector.

Emerging markets and the US led regional equity returns.

Japan’s equities, as measured by the MSCI Japan Index, gained 2.6% over the month. Following the yen’s strengthening against the US dollar at the end of July, as Japan and the US intervened to provide support, the currency fell back during August. The Bank of Japan’s deputy governor noted the upside risk to inflation in a speech towards month end, which underscored rising expectations for a rate rise at its forthcoming meeting in September. Annual inflation moved up from 1.6% to 1.9% in July. The early manufacturing and services PMIs remained solidly in expansionary territory.

In July, the MSCI Emerging Markets Index rose 2.6% in sterling terms. Saudi Arabia and South Africa moved higher, along with Taiwan and Korea, while the Philippines and Mexico slipped back in local currency terms. The AI theme continued to benefit the equity market in Taiwan. In Korea, buyback and dividend announcements from several technology majors also helped the stock market. Meanwhile, the Korean central bank increased policy rates by a further 25 basis points, taking the benchmark rate to 3.0%, as worries about inflation persisted. Meanwhile, Korea’s annual inflation stepped down to 2.8% from 3.2%. South Africa’s stock market benefited from surging precious metals prices, and Saudi Arabia was boosted in part by robust energy prices. Meanwhile, Brazil’s key interest rate was cut for the fourth time this year. The country’s inflation rate moderated and came in below the top end of the Brazilian central bank’s target range of 1.5%-4.5%, with a reading of 4.44% in July.

The MSCI AC Pacific ex Japan Index was up 2.9%. At the country level, Korea, Taiwan and Australia rose, while China and India lagged. China’s export growth softened to 23.9% year on year (y/y) in July, below the 27% y/y growth recorded in June but slightly higher than market consensus. Export growth was boosted by technology hardware related to AI development. Import growth was also elevated but slowed from the previous month on weather disruption and softer demand in China. Industrial production edged down from 5.3% y/y in June to 4.5% y/y as weaker domestic demand influenced output. Australia’s inflation rate softened for the fourth reading in succession, with July’s figure coming in at 3.5% compared with 3.8% in June. However, inflation remained higher than the central bank’s target range of 2-3%. The Australian central bank has hiked rates three times this year to help combat inflation. In India, gross domestic product growth remained at 7.8% y/y in the calendar second quarter, outpacing expectations for 7.1% expansion, helped by manufacturing production and financial services. The Reserve Bank of India kept its benchmark interest rate at 5.25% against a mixed backdrop of robust growth, currency weakness and a further jump in annual inflation, which rose for the ninth month in succession, hitting 4.45% compared with the previous reading of 4.38%.

Solid corporate earnings and resilient economic data helped to bolster equity markets.

Inflationary risks remained on the agenda, and interest rate expectations moved higher across several major markets as hawkishness from the Fed and worries about oil prices prevailed. August also saw an unexpected increase in long-dated bond buybacks by the US Treasury. Amid ongoing volatility, the 10-year US Treasury yield finished the month broadly flat, moving from 4.75% to 4.76%. Government bond yields moved higher in several other major markets (prices fell). The UK’s 10-year yield moved higher, as did that of Germany and France. Japanese government bonds also weakened, with the 10-year yield jumping to highs not seen since the 1990s, amid growing market expectations of another BoJ hike in September 2026. In credit, both high yield and investment grade gained ground, while emerging market debt also rose as US dollar weakness proved helpful.

The FTSE EPRA Nareit Developed Index, a measure of the performance of Real Estate Investment Trusts (REITs), declined 3.8% in sterling terms, chiefly because of the negative impact of rising rate expectations. The return-to-office trend has seen prime, energy-efficient office properties in London and other major cities remain in demand. Technology, media and telecommunications occupiers have been particularly robust. Meanwhile, vacancy rates in retail parks have moved towards record lows.

All index data are shown in total return sterling, unless otherwise stated.
Source: FE Analytics