Investment update for September 2021

A key item in financial markets in the month of September was the statement from the US Federal Reserve at its Federal Open Market Committee meeting. The Fed announced that it would likely soon start tapering its quantitative easing program by moderating its pace of asset purchasing and concluding it in around the middle of next year.

In response to the Fed announcement, bond yields increased meaningfully and equity markets were generally negative in September, although still positive over the quarter. Another item receiving a lot of attention in the US was the approaching government debt limit ceiling and concerns of potential government shut down and Treasury default. Although historically debt ceiling issues are ultimately addressed the risk also weighed on US equities in the month.

In Europe, the federal election in Germany in late September was close, with uncertainty on which parties would form Government and who would replace Angela Merkel as chancellor. Australian equities were also negative in September, particularly Resources stocks as the iron ore price continued to fall precipitously. Conversely, the oil price continued to increase strongly, and the coal price has increased extraordinarily sharply in recent months.

Chinese equities were more stable in September after falling materially in previous months. The Bank of England had already started tapering its quantitative easing and indicated during the month that interest rates could be increased soon.

The European Central Bank (ECB) announced a reduction in the pace of its asset purchases but advised that reducing purchases down to zero would not occur in the near-term.

In contrast, in response to the latest COVID-19 spread, lockdowns and economic contraction, the RBA announced it would extend its bond purchase program until at least February 2022. With bond yields rising, fixed interest returns were negative in September, compared to an ongoing near zero return from cash (bank bills).

In response to the Fed announcing its tapering compared to the RBA extending its bond purchasing program, as well as the falling iron ore price, the USD strengthened against the AUD in September. This provided some moderation of the negative returns in equities for unhedged returns.

Please view our full investment commentary brought to you by our advisers, Frontier, for a more in depth analysis of market conditions this month.

Read our monthly market snapshot.

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.