Investment update for October 2021

After falling in September, equity markets rebounded strongly in October supported by positive reported earnings. US equities and the technology sector were particularly positive. The threat of a debt ceiling crisis in the US was deferred, with Congress passing a measure to allow extra borrowing but it is estimated this will only be sufficient until December.

Australian equities produced a small positive return, with resources stocks being negative again as the iron ore price continued to fall. The oil price continued to rise strongly in October and the price of oil has now more than doubled over the last 12 months. Energy markets are being impacted by the sharp rise in demand and supply constraints.

In Europe, natural gas prices have been linked to geopolitical positioning by Russia, while in China coal shortages have contributed to electricity blackouts that have impacted manufacturing activity. Supply chain constraints and rising energy prices have contributed to inflation remaining high. This has led to markets pricing in a faster pace of interest rate rises in the future.

Bond yields increased over the month producing negative returns from fixed income.  The Australian 10-year government bond yield increased materially to be above 2% at the end of October. The yield has not been at that level since early 2019 and is now back above the US 10-year bond yield. The RBA subsequently advised at its meeting in early November, that it had discontinued targeting the April 2024 bond yield. However, it continues to advise that it does not expect to start raising rates until 2024, while market pricing changed in the month to forecast multiple rate rises in 2022.

In response to the sharp rise in Australian bond yields and the yield premium relative to other developed markets, the AUD increased meaningfully against all major currencies over October. This had a negative impact on unhedged international investments over the month.

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.

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.

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