Global share markets declined in September following the largest pullback seen since October last year. The fallout from the China Evergrande saga, the global energy crisis and US parliamentary uncertainty all contributed to the sell-off in markets.
With most of the month’s negative headlines developing overseas, Australian shares performed relatively better than their global peers. However, the index was dragged lower by several of Australia’s mining majors as the price for iron ore continues to plummet – now down a whopping 46% since July.
Hit the hardest during the month were Global Developed markets where U.S. consumer confidence dropped for a third consecutive month, partly reflecting uncertainty regarding the nation’s debt ceiling and the ramifications on President Biden’s policy agenda. Although a Government shutdown has now been avoided, the US still only has two weeks to lift its debt ceiling to avoid defaulting on its spending commitments. To resolve the issue, it now looks as though Biden may be forced to scale back his spending plans, and maybe even his proposed taxes, to garner support from the moderate Democrats.
The China Evergrande Saga continues to spur volatility within Emerging Markets, as the heavily indebted property developer keeps thousands of creditors worldwide in limbo, unsure of the timing and extent of their next payment. So far, the Chinese Government has shown very little interest in a direct bailout, instead, signalling that it will try and ring-fence Evergrande and limit the damage to the wider economy by propping up healthy developers, homeowners, and the real estate market where it can. Unfortunately for Evergrange bondholders, the prospect of some form of the government rescue plan is now appearing less likely.
The energy crisis in Europe and China has seen the prices for energy skyrocket over the past month. The added inflationary pressure pushed bond yields higher in September, which caused bond returns to fall.
October is set to be a fascinating month as NSW reopens, reaching the crucial 70 and 80% double vaccination milestones. With daily case numbers still likely to be in the hundreds, it will mark the countries first attempt at living with the virus. Initially, the easing of restrictions will only apply to those who are fully vaccinated, with a view to remove restrictions regardless of vaccination status by December 1.
As epidemiologists and medical experts debate the timing of the reopening, Australia should be able to take confidence from the statistics in the UK where restrictions have now been removed for almost 3 months.
Whilst case numbers have continued to transpire in waves, the number of ICU patients and deaths have stabilized well below previous highs and are now trending lower, which is very encouraging. Providing the state health systems can manage the early stages of reopening, Australia will hopefully be able to boost its economic activity heading into the new year.
Watch Luke’s summary below.