July began in global markets in a relatively calm environment, with volatility having declined. However, market sentiment shifted over the course of the month due to three key factors:

• rising geopolitical tensions between the United States and Iran, which pushed oil prices higher,
• an increase in government bond yields, and
• a reassessment of investment expectations around the artificial intelligence theme.

As a result, volatility in risky assets increased, credit indices weakened, and commodity markets benefited from the sharp rise in energy prices.

Equities

Global equity markets delivered slightly positive returns, though regional performance was uneven. The U.S. market remained broadly unchanged amid pressure from higher interest rates and rotation away from the artificial intelligence theme. This had a particularly negative impact on the technology sector.

European markets posted a more constructive performance, supported by energy and commodity sectors, while in Japan the picture was mixed. Export- and technology-sensitive segments came under pressure due to a stronger yen.

Elsewhere in Asia, Taiwan and South Korea significantly underperformed, while emerging markets also generally weakened.

Given market conditions and our outlook, we reduced the weight of foreign equities in the fund from 26.9% to 26.3%.

 Bonds

The rise in oil prices and resilient economic data led investors to revise inflation and interest rate expectations, resulting in increased selling of government bonds in developed markets. 

Central banks left interest rates unchanged but maintained cautious rhetoric. Government bond yields rose in both the U.S. and Europe. U.K. government bonds weakened, as persistent high inflation kept the Bank of England in a cautious stance. Emerging market government bonds also declined.

The yield curve of Armenian government bonds showed mixed movement. Yields on bonds with maturities of up to 15 years declined, while yields on bonds with maturities of 20 years and longer increased.

Corporate bond markets remained relatively resilient despite rate-driven selling. Spreads widened modestly, while investment-grade bonds outperformed high-yield instruments. European corporate bonds outperformed their U.S. counterparts, while high-yield markets in both the U.S. and Europe ended the month slightly negative.

Given market conditions and our outlook, we increased the weights of Armenian government bonds from 30.8% to 31.1%, deposits from 23.5% to 23.7%, and Armenian corporate bonds from 5.5% to 5.8%. 

Currency Market

In the FX market, the Armenian dram appreciated by 0.5% against the U.S. dollar, while it depreciated against the euro and British pound by 0.4% and 1.1%, respectively. 

The decline in the weight of foreign currency assets in the fund from 35.5% to 34.6% was driven by inflows of cash.

In July, the fund’s return was 0.11%. The largest positive contributors to performance were Armenian government bonds and deposits, followed by Armenian corporate bonds, while both foreign bonds and foreign equities had negative contributions.