Investment update for September 2022
The month of September witnessed global selloffs in risk assets in response to interest rate hikes, escalating Russia-Ukraine war, deepening energy crisis and European fiscal stimulus. Concerns about the outlook for the global economy continued to weigh on the markets amid worries that the increasing interest rates around the world will lead to a global recession.
In the US, latest data indicates a slowing yet resilient economy. While headline inflation has come down, core inflation remains elevated. Job growth decelerated a little but remained strong. Although consumer confidence has fallen, spending demand is holding up to date.
Even though natural gas prices fell sharply in recent weeks, Europe faces a worsening energy crisis. Gas shipments from Russia remain very low and uncertainty continues regarding Russian intentions during the coming cold winter months.
Stocks across the world took heavy losses as the US Federal Reserve continuing to raise interest rates sharply destabilised global markets. The US equity market (S&P 500 Index) broke below its mid-June lows and fell back to November 2020 levels, producing a large negative return for the month. Equity markets in general globally produced negative returns in September.
Australian equities also produced a negative return over the month as the market fell to a three-month low. Among the sectors losing ground were real estate, utilities, technology and financial stocks.
Economic activity in China is still weak, given the continued restrictive policy regarding COVID-19. The latest data shows some recovery in retail spending, infrastructure investment and industrial production, but some leading indicators are still in contractionary territory and the housing sector has deteriorated further. Chinese and emerging market equities produced negative returns in September.
Market pricing is forecasting further interest rate hikes and the Fed has advised that it will likely continue to tread an aggressive path of rate rises. This has led to soaring bond yields causing negative returns for bonds. However, in Japan, the Bank of Japan reiterated dovishness and said it was appropriate to persistently continue with monetary easing to support Japan’s economy and will ease further if needed.
The US dollar continued its ongoing rally, putting more pressure on emerging markets currencies as well as the Japanese Yen and the Euro. Pressured by the weakening currency, Japan and other Asian countries reportedly conducted intervention in markets to support their currencies. The UK announced a series of tax cuts and energy package that fueled concerns about sprawling inflation and contributed to volatility in the GBP. The Australian dollar depreciated against each of the major currencies over the month, thanks to international central banks becoming more hawkish and recent turmoil in global financial markets.
Listed real assets, property and infrastructure, produced a negative return in September in response to rising bond yields and decreasing property prices.