Q2 2021 Review: Global Equities Rebound

United States

The second quarter was strong for US equities, in fact, the S&P 500 reached a new all-time high in late June. Almost all sectors made gains over the quarter.

The Federal Reserve indicated that interests rate policy is to remain unchanged for the near future, but rate hikes would probably occur in 2023. The Federal Reserve’s (Fed) indication initially seemed to wrong-foot some market participants, though subsequent comments by Fed officials sought to allay any worries over tightening monetary policy too quickly.

More positive economic data continued to emerge, as the US economy continued to re-open after several Covid-19 restrictions were lifted across the country. Q1 GDP grew at 6.4% (quarter-on-quarter, annualised), this was modestly lower than the consensus of 6.7%. Growth in consumption was especially strong. Industrial activity as measured by US composite purchasing managers’ index (PMI) moved from 59.7 in March, to a (flash) composite reading of 63.9 in June. This higher PMI index reading indicates higher economic activity.

During Q2, inflation figures were closely monitored. In May, core consumer price index (CPI) inflation rose from 3% to 3.8% year-on-year – the largest increase since June 1992, with the “reopening theme” being a big driver.

In late June, President Joe Biden secured a deal on an infrastructure package worth about $1 trillion to upgrade roads, bridges and broadband networks over the next eight years. Although this infrastructure bill is substantial, it fell short of the $2.3 trillion initially announced in Q1.


Eurozone shares gained throughout the quarter, supported by a strong corporate earnings season and an acceleration in the pace of vaccine roll-out in the region. Many European countries saw Covid-19 infections fall over the quarter and were able to loosen restrictions on social and economic activity.

Rotations in the market between growth and value areas saw a mixed group of sectors lead the gains. The top performing sectors included defensive areas such as consumer staples and real estate, which had lagged in Q1 as investors focused on more economically-sensitive areas of the market. However, information technology was also among the top gainers in Q2, while utilities and energy lagged behind. Quarterly earnings for Q1 were generally very robust across the board, with the exception of the healthcare sector.

Similar to the US, economic data in the Eurozone pointed to a strong rebound in activity in Q2. The flash Markit eurozone composite PMI rose to 59.2 in June, its highest level since June 2006. Although inflation figures were not as high as the US CPI index, Eurozone inflation was estimated to be 1.9%. This level of inflation is significantly higher when compared to the negative levels experienced between August and December 2020.

The European Commission signed off the first of the national recovery plans, which will receive funding from the €800 billion Next Generation EU fund. Spain and Portugal were the first countries to have their spending plans approved.

United Kingdom

UK equities performed well over Q2, although beneath the strong headline figure the quarter was mixed. Markets were largely driven by lowly valued and economically sensitive sectors during April and May.

Small and mid-cap (SMID) equities outperformed during Q2. Among them were domestically and internationally exposed SMIDs set to benefit from recovering global and domestic economies. The UK economic outlook brightened considerably as GDP forecasts were upgraded, while the Bank of England said it was going to slow the pace of quantitative easing.

June saw UK markets struggle, with the rise in Covid-19 infections and falling expectations impacting performance. Amid this uncertainty in June, defensive large cap equities were very much in favour, a trend amplified as sterling fell against a very strong US dollar. Other defensive sectors which performed positively were, healthcare and consumer staples. While energy also performed well in June, the main lowly valued and economically sensitive sectors did not. Financials performed poorly as market interest rates fell – the UK’s banks and insurance companies, which dominate the sector, typically benefit as rates rise, as they had in Q1 due to inflationary concerns.

The Covid-19 delta variant impacted UK’s re-opening plan, due to delays in the lifting of measures. Retailers and travel and leisure sectors in particular performed poorly.


Looking at Japan, markets underperformed other developed markets in Q2. Increases in Covid-19 cases causing delays in the re-opening of the economy and slow vaccine rollouts impacted Japanese markets negatively.

Recently released economic data from Japan reflected negative short-term growth rather than the capacity for a faster recovery in the latter part of the year. Industrial production data was weaker than expected, primarily as a result of curtailed auto production due to the global shortage of semiconductors. This also had an impact throughout the auto supply chain. Despite the rise in global inflation expectations this year, Japan’s data continues to show mild deflation due to several on-off impacts.

The MSCI Asia ex Japan Index recorded a positive return in the second quarter amid continued investor optimism for a return to economic normality and an end to the Covid-19 pandemic. However, stocks were more muted towards the end of the quarter as a resurgence of Covid-19 infections and lockdowns due to the delta variant somewhat curbed investor optimism. A stronger US dollar also weighed on returns in June, while a more hawkish tone from the US Federal Reserve and growing concerns over inflation further weakened sentiment.

Emerging Markets

Emerging market equities registered a strong return over the second quarter, despite a sell-off in May due to worries about monetary policy tightening by the US Fed. Brazil was the best-performing market in the MSCI Emerging Markets index, with currency strength amplifying gains. Central bank actions to tighten policy in the face of rising inflation, an acceleration in vaccine roll-out, an easing in fiscal concerns and renewed reform progress all boosted sentiment.

Global Bonds


Q2 saw the substantial move in the US treasury 10-year experienced in Q1 retract, as it fell from 1.74% to 1.47%. Large rebounds in economic activity saw inflation rates rise to levels which were seen over a decade ago. Speculation about whether inflation is transitory or here to stay has been ongoing and will continue to impact the bond market.

European government bonds under-performed the US in Q2, with the German 10-year yield rising from -0.29% to -0.20% and France from just below zero to 0.13%. Meanwhile, the Italian 10-year yield rose from 0.67% to 0.82%.

The sharp rise experienced in the UK 10-year yield during Q2 later retracted slightly by end of quarter from 0.85% to 0.72%.


Corporate bonds performed well, outpacing government bonds. Both global investment grade and high yield credit produced a total return (local currency) of 2.4%. US investment grade rebounded well following the decline in Q1. Investment grade credit was helped by falling yields, while high yield benefited from the economic recovery and positive fundamentals, including low expected default rates.


During the second quarter of 2021, the MSE Equity Index increased by 3.7%. This positive performance was mainly driven by International Hotel Investments plc (23.8%), PG plc (10.8%), Simonds Farsons Cisk (8%), Malta International Airport plc (6.7%) and RS2 Software plc (6.7%). On the other hand, nine equities performed negatively over Q2, with the worst performers including; FimBank plc (-13.5%), Mapfre Middlesea (-10.1%) and GO plc (-7.7%). The two main banking stocks closed Q2 in opposite directions, as Bank of Valletta plc ended the month in positive territory with an increase of 2.6%, while HSBC Bank Malta plc ended Q2 in negative territory with a decline of 1.2%.

Looking at the local fixed income movements over Q2, the MSE Corporate Bonds Total Return Index closed 1.3% higher while the MSE Malta Government Stock Index dropped by 1.8%.

Article Sources: Schroders Insights and Malta Stock Exchange

This article does not intend to give investment advice and the contents therein should not be construed as such. The Company is licensed to conduct investment services by the MFSA and is a Member of the Malta Stock Exchange and a member of the Atlas Group. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For further information contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on Tel: 2122 4410, or email [email protected]