July 2026 Review

VolAItility

After stellar increases in the value of their share prices over the past year, artificial intelligence (AI) chip manufacturers and makers of their component parts went on a roller-coaster ride in July in terms of their share price volatility. While some of those leading technology companies reported good second quarter earnings, their share prices were punished as a result of further large capital expenditure to fund artificial intelligence infrastructure. As the following chart from Bloomberg shows (complicated so apologies in advance), much of the borrowing to fund the AI build-out centres around Nvidia. As we noted in June’s Monthly Review, markets are doubting the financial payback of this expenditure.

Leverage

Also mentioned in recent reviews and updates, one of our concerns has been the amount of leverage in the financial system. By leverage, we are referring to the amount of investment activity (speculation) created by borrowing to invest rather than from savings or cash flow. Three quite different factors highlighted the problems that can be caused by too much leverage :

1. The Situational Awareness hedge fund founded by 24 year old Leopold Aschenbrenner blew up and all their leveraged positions were liquidated. At the end of June, the fund had USD40 billion. On the 29th of July it had USD8 billion. Equity, currency and bond markets were more volatile in July than in previous months but not down sharply in percentage terms. The failure of Situational Awareness seems to be an isolated incident where an increase in volatility and the cost of funding their leverage, did for them.
2. The combined intervention in foreign exchange markets by Japan and the US to reverse the Japanese yen’s slide will make those investors funding investment positions by borrowing cheaply in yen think again. (Japanese yen borrowing rates are much lower than most other countries).
3. One of the most volatile equity markets has been that of South Korea, otherwise referred to as the KOSPI. It made July’s headlines due to sharp falls in the share prices of AI darlings, Samsung Electronics and SK Hynix who between them dominate the KOSPI, with Samsung Electronics alone representing almost 30% of the index. The KOSPI was down almost 21% in July despite good financial results from both these companies which have enjoyed spectacular share price increases over the past year. The problem has been retail investors in South Korea getting carried away with the excitement and being able to buy a three times leveraged exchange traded fund (ETF) in a single company like the two mentioned above. Unsurprisingly, but belatedly, South Korean authorities have clamped down on this type of “investing”.

Concentration

Over the years, large companies have grown in size as measured by their worth or market capitalisation. The larger companies’ leadership changes over the years. 2026’s new kids on the block take the top ten companies in aggregate towards 40% and ten per cent higher than the previous high in terms of concentration (see below). For those investors focusing solely on market capitalisation indices, this creates a dilution in diversification and increase in specific equity risk. Pier looks beyond market capitalisation to a broader definition of equity allocation and consequently, better diversification.

Economic Events in July

• UK Consumer Prices Index for June showed a rate of inflation of 2.6% unchanged from May.
• The Bank of England voted to maintain its Base/Bank Rate at 3.75% when the Bank’s Monetary Policy Committee (MPC) met on Thursday, July 30thth.
• The European Central Bank (ECB), the Bank of Japan and the US Federal Reserve all left their official interest rates unchanged. The first two had recently raised rates in June while the US central bank resisted the temptation to, despite three members of the twelve voting members voting to raise rates.
• In the final two days of July, Japan and the US combined to support the Japanese yen by both countries buying yen from US dollars, resulting in the yen rising over 4% over those two days.
• Concerns over fiscal discipline, i.e. incurring too much debt on top of outstanding debt, in both the US and UK caused bond yields to rise (prices fell).
• US second quarter gross domestic product, (GDP or economic growth), was 1.5%, below the expected level of 2.0%.

Your Money

Despite the gyrations in equity prices and the volatility in the oil price, Pier portfolios benefitted from their diversified approach to deliver relatively stable price performances in July, avoiding much of the AI-related share price falls.

Below is the performance of the Pier portfolios for the month of July and year to date to end July of 2026.