Investment update for August 2021
Globally, the reopening and rebound of economic activity continued in August. However, although some economic data remains very strong, it is starting to retrace from the peak growth levels earlier in the year. Equity markets in all major regions produced positive returns in August. Early in the month, there was some continued weakness in Chinese equities but returns later rebounded to produce a strong positive return for the month overall.
The Delta variant of COVID-19 continues to spread and new cases have been rising. In Europe and the UK, vaccination levels have meant that hospitalisation rates have not risen at the same rate as in previous waves. But in the US, where vaccination levels are not as high, particularly in certain states, hospitalisation rates are increasing more sharply.
In Australia, the spread of the Delta variant, has resulted in heavy lockdowns in the two most populous states of New South Wales and Victoria. The lockdowns have resulted in a sharp slowdown in economic activity. However, the Australian equity market still produced a solid positive return in August. Market returns benefited from the takeover of Afterpay by US company Square for around $40 billion, in the largest takeover in Australian history. Conversely the Resources sector produced a large negative return in August, as the oil price and other commodity prices, specifically the iron ore price, continued to decline with slowing economic growth in China.
Real assets, particularly Australian listed property, also had positive returns in August.
The US Federal Reserve Chairman, Jerome Powell, advised that given “substantial further progress” in the economic rebound he believes tapering of some of the monetary support should occur this year, but that interest rates will not be raised in the near-term.
During August, Australian government bond yields declined a small amount, while international bond yields, including in the US, increased by a small amount. Australian 10-year government bonds yields are at a discount to US 10-year bonds yields, compared to at the start of the financial year when Australian bond yields were at a premium to the US. The result of these bond yield movements was a very small positive return for Australian bonds and a small negative return for international bonds.
The AUD fell again against all major currencies in August, except for the GBP which was weak over the month.
You may have heard about the Chinese property developer, Evergrande, in the news lately. Whilst AvSuper has little exposure to Chinese investments, significant changes to the Chinese economy could impact on investment markets generally. One of our investment managers provides two articles you may find interesting on this topic – China’s Debt Dilemma and Thoughts on China Opportunities From an Active Risk Management Perspective
Please view our full investment commentary brought to you by our advisers, Frontier, for a more in depth analysis of market conditions this month. The monthly commentary can also be viewed on YouTube.
We trust you find this information useful in understanding how your AvSuper investment is being influenced and welcome your feedback on how we can improve the information we provide to you.