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Investment Perspective | 8 November

October/November 2021

Equities had a relatively volatile September and October, with the ASX200 falling as much as 4.5% per cent during September before staging a recovery in October to end just over 1% lower as at 22 October 2021. Rising yields in the face of higher-than-expected inflation readings across the globe, concerns about China growth, and the associated fall in some commodity prices all contributed to the earlier pullback. The US S&P500 index finished roughly steady over the same period. The tech-heavy NASDAQ index fell approximately 1%, impacted to a greater extent by rising yields.

US-listed companies have had a solid start to their quarterly earnings season, helping to soothe investor concerns and justify prevailing valuations. In Australia, the Annual General Meeting (AGM) season is heating up, and trading updates and guidance have mostly aligned with market expectations. U.S. 10-year bond yields sit around 1.64% at writing, whilst Australian 10-year yields sit about 1.77%, up 0.39% and 0.50%, respectively, since the last update.

Iron ore has fallen to USD$118 (China futures pricing) amid concerns surrounding weaker than expected China GDP growth and the issues currently experienced in the heavily indebted property sector. Copper has risen to USD$4.50, near an all-time high. Gas, coal, and oil prices have increased significantly over the last two months. With strong demand as economies reopen, an expected cold European and Chinese winter, and tighter than expected supply. Brent crude has risen to over USD$85, the highest price in more than six years. Increasing energy costs will feed into higher inflation readings over the coming months. Gold was steady at USD$1792.

The Australian Dollar has strengthened against the U.S. Dollar to 74.5 cents.

Economic overview

The Australian economy has remained resilient over the last two months, even with our two largest capital cities and roughly half of our population spending most of this period in strict lockdowns. NSW and Victoria are progressively reopening after achieving vaccination targets linked to extra freedoms. There are positive signs that the job market is starting to recover, with payroll jobs rising in late September. Business and consumer confidence levels have begun to rise. They are well above last year’s lows, with a growing sense of confidence in the community that life will soon resemble a normal state. Pleasingly Australia is on track to reach world-leading vaccination rates, potentially over 90% of adults double dosed, that will hopefully see widescale lockdowns become a thing of the past. The Australian economy is expected to return to growth in the December quarter, helping to offset a weak September quarter, as pent-up demand is finally released, and borders begin to open.

The US Federal Reserve signalled they would begin tapering asset purchases ‘soon’, likely starting in November. A gradual reduction of this unprecedented stimulus provided during the pandemic has been carefully communicated and will be actioned in a staggered approach so as not to spook equity markets. In September, consumer price inflation rose more than expected, with the rise driven by more ‘sticky’ factors rather than transitory reopening factors. In response, 10-year bond yields rose to post-pandemic highs. Investors are betting that the Fed will have to begin raising interest rates earlier than communicated to combat inflation. In other news, US debt ceiling concerns were temporarily alleviated, with Republicans offering a short-term extension.

China’s September quarter GDP growth slowed to 4.9% year-on-year, impacted by tight policy conditions and COVID lockdowns. Retail sales were better than anticipated when restrictions did eventually ease, though industrial production disappointed. The heavily indebted property developer Evergrande was a hot topic, with markets initially concerned about contagion risk should the firm collapse. Market nerves were allayed with expectations rising that the Chinese government was likely to restructure the firm to limit and flow-on effects to the rest of the sector and the broader economy. China’s central bank boosted daily liquidity injections, which is an early sign that they may be starting to reverse their tightening stance. Such measures would help increase consumer spending and investment and may support the economy through future lockdowns.

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This month’s perspective highlights that market sentiment on all asset classes is constantly changing. It is important for us to quickly recognise any threats, to preserve your investment capital or to identify early investment opportunities to maximise any return advantages. At Partners Wealth Group we don’t get complacent with the current state of play and constantly monitor investments and your portfolios.

If this article has raised questions regarding your personal situation, please contact your Partners Wealth Group advisor directly or on 1800 333 143.

This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider you financial situation and needs before making any decisions based on this information.

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