Market Update October 2021

Energy and Evergrande fear arise

  • Global shares fell 3.8% and 3% in hedged and unhedged terms, respectively. After a period of strong outperformance, growth stocks led by US tech names were the worst performers in September. Inflation fears amidst energy supply issues in China and Europe was one driver. The prospect of reduced central bank support with lower bond purchases was another.
  • Australian shares outperformed global shares, falling 1.9% in September. The leading sectors were Energy (up 16.4%), Utilities (up 2.1%) and Financials (up 1.5%). The mining sector under performed (down 12.1%) as investors reacted to the sharp selloff in iron ore prices, driven by Chinese growth fears.
  • The Australian dollar (AUD) fell 0.7% against major currencies and 1.2% against the US dollar. Concerns over China amidst the unraveling of developer Evergrande weighed on AUD support.
  • Fixed income returns were also poor. An increase in long-term bond yields saw both Australian and international bonds sell off


As global growth momentum slows:


Globally

  • Global business surveys suggest economic growth momentum continued to soften in September. Supply chain disruptions remain an ongoing feature in business surveys impacting inflation.
  • In addition, several factors drove energy fears across both China and Europe. In China’s case, restrictions on Australian coal imports played a part as did issues crimping coal mining outside Australia.
  • The unraveling of Chinese property developer Evergrande also triggered fears about the Chinese property market and flow on impact outside China. It appears the government will not bail out the business but is looking to minimise the fallout of any collapse.


Locally
  • The lifting of coronavirus restrictions in Sydney and Melbourne is approaching. 11 October is the likely start for Sydney and late October for Melbourne.
  • As both business and consumer confidence has held up in thislockdown phase, we anticipate a strong bounce back in the economy for the December quarter.
  • The RBA maintained guidance that interest rates would stay at 0.1% until 2024.
  • The strength of the local property market is drawing regulatory attention with expectations of APRA using macroprudential policy tools. These could impact the total amount able to be borrowed due to tighter debt servicing requirements, slowing the market.


Major asset class performance

Asset classes1 month %1 year %5 years (p.a.) %
Australian Shares-1.9%30.6%10.4%
Australian Small Companies-2.1%30.4%10.2%
Global shares (hedged)-3.8% 28.3%13.4%
Global shares (unhedged)-3.0%27.8%15.2%
Global small companies (unhedged)-1.8%39.4%13.8%
Global emerging markets (unhedged)-2.8% 17.3%10.5%
Global listed property (hedged)-5.3%29.1%4.4%
Cash0.0%0.0%1.2%
Australian fixed income-1.5% -1.5% 3.1%
International fixed income-1.0% -0.8% 2.7%

Source: Source: Bloomberg & IOOF, 30 September 2021

Indices used: Australian Shares: S&P/ASX 200 Accumulation Index, Australian small companies: S&P/ASX Small Ordinaries Accumulation Index, Global shares (hedged): MSCI World ex Australia Net Total Return (in AUD), Global shares (unhedged): MSCI World ex Australia Hedged AUD Net Total Return Index; Global small companies (unhedged): MSCI World Small Cap Net Total Return USD Index (in AUD); Global emerging markets (unhedged): MSCI Emerging Markets EM Net Total Return AUD Index; Global listed property (hedged): FTSE EPRA/NAREIT Developed Index Hedged in AUD Net Total Return; Cash: Bloomberg AusBond Bank Bill Index; Australian fixed income: Bloomberg AusBond Composite 0+ Yr Index; International fixed income: Bloomberg Barclays Global Aggregate Total Return Index Value Hedged AUD

Please note: Past performance is not indicative of future performance

Currency Markets
Exchange ratesAt close on 31/81 month change %1 year change %
USD/AUD0.73-1.2% 0.8%
Euro/AUD0.620.7%2.1%
Yen/AUD80.4%-0.1%8.6%
Trade weighted index60.8%-0.7%0.2%

Source: Bloomberg & IOOF, 30 September 2021.

All foreign exchange rates are rounded to two decimal places where appropriate

Please note: Past performance is not indicative of future performance.


Disclaimer:
This report has been prepared by the IOOF Research team for RI Advice Group Pty Ltd ABN 23 001 774 125 AFSL 238429. RI Advice Group Pty Ltd is a company within the IOOF group of companies consisting of IOOF Holdings Limited ABN 49 100 103 722 and its related bodies corporate. This report is current as at the date of issue but may be superseded by future publications. The information in the report may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of RI Advice Group Pty Ltd. This report may be used on the express condition that you have obtained a copy of the RI Advice Group Pty Ltd Financial Services Guide (FSG) from the website. RI Advice Group Pty Ltd and/or its associated entities, directors and/or its employees may have a material interest in, and may earn brokerage from, any securities or other financial products referred to in this report, or may provide services to the companies referred to in this report. This report is not available for distribution outside Australia and may not be passed on to any third person without the prior written consent of RI Advice Group Pty. RI Advice Group Pty and associated persons (including persons from whom information in this report is sourced) may do business or seek to do business with companies covered in its research reports. As a result, investors should be aware that the firms or other such persons may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making an investment decision. This report has been prepared in good faith and with reasonable care. Neither RI Advice Group Pty nor any other person makes any representation or warranty, express or implied, as to the accuracy, reliability, reasonableness or completeness of the contents of this document (including any projections, forecasts, estimates, prospects and returns and any omissions from this document). To the maximum extent permitted by law RI Advice Group Pty, its related bodies corporate and their respective officers, employees, representatives and associates disclaim and exclude all liability for any loss or damage (whether foreseeable or not foreseeable) suffered or incurred by any person acting on any information (including any projections, forecasts, estimates, prospects and returns) provided in, or omitted from this report.


General Advice Disclaimer:

The information in this report is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this report, you should assess your own circumstances or seek advice from a financial adviser. Where applicable, you should obtain and consider a copy of the Product Disclosure Statement, prospectus or other disclosure material relevant to the financial product before you acquire a financial product. It is important to note that investments may go up and down and past performance is not an indicator of future performance.
For information regarding any potential conflicts of interest and analyst holdings; IOOF Research Team’s coverage criteria, methodology and spread of ratings; and summary information about the qualifications and experience of the IOOF Research Team please visit https://www.ioof.com.au/adviser/investment_funds/ioof_advice_research_process


Market Update October 2021