While, on the surface, equity market returns over the third quarter appear more than satisfactory, the journey to this point has been by no means comfortable. The month of September provided a reminder that confidence is fragile, as global equity markets eased back some -3.5%, from all-time highs achieved towards the beginning of the month. Growing fears of a second wave of infection which we are currently witnessing across the world, ahead of any real vaccine success to the COVID-19 , indicates that a further slowing in GDP growth could well be around the corner, as isolated lockdowns take their toll. Whilst encouraging soundbites on a prospective vaccine have been made, this still appears most likely to be next year at the earliest.
As the markets consolidated, many of the technology and communications stocks which have been running fast this year saw profit taking kick in. The energy sector however was particularly hard hit on further oversupply fears, as any reduction in demand due to further COVID-19 impacts on economic growth may inhibit any recovery in this sector. OPEC meetings are due to address this in October, but little action to curtail supply is expected and with Libya now increasing production and more able to export oil onto world markets.
Something of a reversal in the trend away from government bonds was seen over the month, as the FTSE World Government Bond Index saw greater support, with European issues leading, whilst poorer quality credit saw some profit taking in sympathy with broader equity markets. US high yield credit in particular saw the brunt of the pullback as investors rotated away from this more economically exposed segment of the credit space.
The US Federal Reserve’s (the Fed), continued expansionary monetary policy even in the face of potential inflation, foreshadowed at the Jackson Hole meeting, and was reaffirmed with the Fed retaining zero interest rates and forecasting them to remain at this level until at least 2023. The Fed chairman highlighted the need for fiscal measures to support the US economy. Optimism over such a fiscal package triggered a late month end equity rally. European Central Bank’s (ECB) president, Christine Lagarde, indicated at the end of the month that the ECB will follow suit in allowing inflation to rise unchecked for a period without raising interest rates.
Our Global Multi Asset Funds consolidated in line with expectations given the market pullback, with the Global Growth Fund falling by some -1.6% on the month, in line with its peer group.
The Global Defensive Fund was down -0.6%, while USD Global Balanced was also down – 0.7%. The Sterling Asset Management Fund (GBP base) fell -0.6%.
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