China has been the mainstay for world economic growth for many years but is likely to be less so.  The June decline in the Chinese manufacturing PMI to 53.2, pointed to a further loss in momentum which is in stark contrast to recent U.S. recent economic data which was strong: durable goods orders rose by 1.7% in May compared to consensus expectations for a decline of 0.9% and real GDP growth in Q1 was revised higher from 1.4% to 2.0%. Inflation-adjusted personal consumption grew at a 4.2% annualised rate in the first quarter, the fastest pace since Q2-2021 when consumers were still emerging from their COVID-induced hibernation. The all important, US Consumer Confidence Index increased to 109.7 in June, up from 102.3.

On the inflation front, while recent Eurozone CPI data pointed to an ongoing improvement in inflation with the index declining to 5.5% year-on-year, UK inflation remained elevated at 8.7%.  This prompted the Bank of England to increase rates by a further 50bps resulting in a cumulative increase of 490bps since December 2021.

The rise of artificial learning capabilities and its applications has excited the markets in recent weeks and at the last quarterly earnings calls of America’s big tech companies, AI was certainly the centre of attention.  At the Alphabet (Googles parent company) meeting AI was mentioned 64 times, Microsoft made 50 mentions and Meta (Facebook’s parent company) made 47 references to the emerging technology. Novel uses of AI systems are growing, with many people impressed by first draft capabilities in search, coding, copy writing, support centres, artistic creation and other uses.  An exciting prospect is that the use of AI could be the efficiency booster needed to help productivity the same way that personal computers did in the 1980’s.  This technology is on a hockey stick trajectory of adoption and improvement, so what it looks like in 12 months’ time is likely to be very different from today.

The net result of all of the AI media hype was that the MSCI increased by 5.9% driven in large part by the technology stocks in the US.  The NASDAQ had another excellent month, up by 6.6% with the S&P500 up by a similar 6.5%. In the UK, which does not have the same exposure to this emerging technology, other than the FTSE 100 which was up by 1.2%, most of the indices were down.  The broader FTSE 250 Index was down by 1.6% while smaller company valuations fared poorly.  The Small Cap Index was down by only 0.4%, the AIM All-Share Index was down by 3.7%, while the Fledgling Index fared the worst and was down by 8.7%. The Athelney portfolio also declined with the NAV down by 2.6%.

During the month we continued to reduce our exposure to the property sector, selling down some of our holding in LondonMetric and top slicing our holding in Games Workshop.  Cash was used to increase our exposure to Impax Asset Management and Cake Box with our cash holding at month end comprised 3.8% of the portfolio.