7 key factors shape global markets in H1 2023

The first six months of 2023 have been eventful for global financial markets, however, they reported strong gains.

In the first half of 2023, geopolitical concerns escalated worldwide. Monetary tightening continued to curb inflation. Further, the banking sector experienced turmoil and suffered deep losses amid a contentious debt ceiling standoff.

Optimism that inflation will reach a peak, monetary tightening may end soon and that major economies will avoid recession artificial intelligence (AI) contributed significantly to the recovery of global equity markets.

Equity Market Recovery

Global equity markets reported a 12%, or $6 trillion, rally in value of world stocks.

Wall Street led the way, as the S&P 500 and Dow Jones Industrial Average index leapt 15.9% and 3.8%, respectively.

In Europe, the STOXX 600 added nearly 8.8% in the first half of the year.

The markets were buoyed by optimism that inflation will reach a peak, the monetary tightening may end soon and major economies will avoid recession.

Techs drive upside

US tech companies rose significantly in the first half of 2023, supported by the artificial intelligence (AI) boom and strong balance sheets of some major companies, which makes them a safe haven in times of economic turmoil.

The Nasdaq Composite leapt 31.7% in H1 2023, recording the best semi-annual performance since 1983.

Apple was the best performer among tech companies, soaring 49% in the first six months of the year, with a market value of above $3 trillion, the highest since listing.

Meanwhile, Microsoft rose 42% and Tesla was up 112% during the six-month period.

AI boom

The AI boom was one of the main themes that dominated the attention of investors around the world in the first half of 2023.

Many global tech companies have entered a frantic race to establish themselves in the sector, with winners emerging in the first phase of the struggle.

The AI boom added nearly $5 trillion to the value of Nasdaq- 100 index companies, amid strong gains for many companies.

Nvidia topped the list of beneficiaries of the AI boom, with the chipmaker's stock rising by about 189% in the first six months of the year, to exceed the trillion-dollar mark.

Bitcoin is coming back

Bitcoin outperformed other asset classes during the first half of 2023.

The largest cryptocurrency by market capitalization rose 83% in the first six months of the year, ending June at $30,400 versus $16,600 at the start of the year.

Bitcoin was supported by a marked institutional interest in the cryptocurrency market, in addition to optimism about the approaching end of the monetary tightening cycle by major central banks.

BlackRock is seeking to launch a Bitcoin spot ETF, and Fidelity Investments, Charles Schwab and Citadel Securities announced a plan to launch a joint digital asset platform.

However, the crackdown by US regulators against platforms such as Binance and coinpass remains a potential vulnerability for the cryptocurrency market.

Banking crisis

The banking sector on both sides of the Atlantic experienced strong turmoil in the first six months of 2023, as part of the fallout from high interest rates.

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In Europe, Credit Suisse was hit by a bank panic, with customers scrambling to withdraw their funds amid concerns about the bank's financial situation before UBS buys the bank under government supervision.

Regulatory authorities in the US and Europe intervened to guarantee customers' deposits and prevent the spread of crisis to other banks.

Japanese stocks outperform

Japan's stock market reported unprecedented gains in a decade, supported by a weaker yen, persistently weak inflation, and lower valuations.

The Nikkei 225 rose 27.2% in H1 2023, hitting its highest level since 2013.

The broader Topix Index also rose 21% in the same period, which is its best performance in the six-month period over 10 years.

Both indices rose in mid-June to a 33-year high, before paring gains.

The US investor Warren Buffett earlier announced the injection of investments in five Japanese commercial companies, expressing his optimism about Japan's stock market.

War against inflation ongoing

There have also been around a total of 90 interest rate hikes this year by central banks globally versus just 17 cuts.

The US Federal Reserve has lifted rates three times year to date, but kept rates unchanged in June. It hinted at two additional rate hikes until the end of 2023.

The European Central Bank has raised rates four times in the first half of the year. Bank of England also raised borrowing costs four times in the same period.

Sources: Argaam, JP Morgan, Bloomberg, Reuters, New York Times