Global slowdown, tapering lead to weakness in equity
- While still very accommodative, global central bank policy became a bit more restrictive with the rhetoric around tapering asset purchase programs and expectations of future rate hikes. Despite the slightly hawkish central banks of late, investors should be ready for a potential return of volatility linked to tapering.
- The negative news from China seemed relentless in September as a missed debt payment by China’s most prominent land developer sent shockwaves through the market on concerns that the default could bring about a systemic failure to the global banking system. The pressure appears to be building.
Global equities showed mixed signals over the month due to a confluence of factors weighing on investor sentiment, including the resurgence in COVID-19, worsening supply chain stress and the Evergrande crisis in China. The S&P saw its string of seven consecutive monthly gains snapped, as the index lost 3.69% for the month. Only one of the S&P 500’s 11 sectors was positive on the month; the energy sector gained 9.15%.
The wobble in Chinese equities dragged emerging market equities down, despite some markets, such as Japan, continuing to perform well. There is the risk of a sharper-than-expected slowdown in China given the decline in credit growth this year and the purchasing managers’ indexes (PMI) trending lower. Monetary and fiscal policy have been eased; however, senior officials have signalled that more stimulus is on the way.
Risk-off sentiment benefited the US dollar which strengthened against most developed and emerging market currencies. Soaring energy prices triggered the onset of energy crises in the UK and Europe as the month saw the largest one-day spike in crude oil prices since 1989. Officials played down a potential crisis but warned of further burden on consumers.
Cryptocurrencies experienced significant volatility and posted losses for the month. Bitcoin logged its fifth straight September loss of -7.34%. This all came after El Salvador officially adopted Bitcoin as legal tender, Evergrande’s crisis, and when China announced a ban on crypto dealings.
Against this slightly unsettled backdrop, NinjaVan closed of a $578 million Series E round, bringing the firm’s total funding up to $976 million as it ponders a potential initial public offering next year. Carousell also saw a successful $100 million in funding round, putting the company’s valuation at USD1.1 billion. This adds to the growing list of unicorns in the ASEAN region.
So, while there may be some bumps along the way, business cycle indicators show that momentum remains strong and there is still a fair amount of pent-up demand that will likely continue to support risk assets. As we look into the final quarter of the year, we believe that the pattern we’ve seen so far this year, of equities outperforming government bonds, is likely to continue.
Disclosure: This material is intended for reference and information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities or financial products to any person in any jurisdiction. Reliance upon information in this material is at the sole discretion of the reader. Investment involves risks and past data is not an indication of future performance Stratez Capital (‘SCA’), is an open-ended investment company (UEN: 202027550R) incorporated in Singapore and its home regulator is the Monetary Authority of Singapore (‘MAS’)