Selected Market Indicators for Periods Ended 30 September 2021

September proved to be a difficult month for Global Equity markets as a slowing global economy, worsening supply chain and the potential Evergrande bankruptcy in China dented investor sentiment. The US slightly underperformed Global Equity markets. While Emerging Market equities (such as those from China, India and Brazil) performed in-line with global equities.

Credit spreads (the difference in yield between a U.S. Treasury bond and another debt security of the same maturity but different credit quality) widened as traders and investors in reduced their exposure to risk and focused on protecting their capital. The US dollar strengthened and energy prices soared, while performance for non-energy commodities were more mixed.

The MSCI All Country World Index returned -2.2% for the month (in unhedged NZD). The index declined due to a cooling global economy suffering from on-going supply constraints, and tightening monetary policy in Europe, as well as multiple economic challenges in China, and political uncertainty in Germany and Japan. Additionally, major central banks announced slowdowns in their asset purchases and, in some cases, rate increases.

The New Zealand market ended the month up 0.6%. Performance was buoyed by economic data showing resilience in the NZ economy, despite the impacts of the delta-lockdown. However, upside was limited by expectations of an OCR increase at the October Reserve Bank of New Zealand meeting (which since increased the rate to 0.5). 

Significant developments for September included:

• In the US, the Federal Reserve (Fed) signalled its intention to slow the pace of its asset purchases, which are set to come to an end by around the middle of next year. The Fed’s projections show US interest rates increasing to 1.75% by the end of 2024. The pace of rate increases was faster than market expectations, resulting in a rise in Treasury yields and reversing declines seen earlier in the quarter.
• Supply chain woes worsened with container ship queues at US west coast terminals lengthening. Shipping rates have reached new highs and a shortage of truck drivers needed to supply gas stations led to a 1970s-style run on fuel in the UK. These supply constraints have kept inflation high across the developed world.
• Investors contended with fears around the potential default of Evergrande, a large Chinese property developer. The company, which carries significant debt and financing obligations, announced its inability to meet upcoming interest and principal payments, sparking fears of a collapse in the Chinese property market (amounting to a large share of China’s GDP) and potential flow on effects.