September saw Aussie markets stumble as China slipped and pushed itself back up, while the whiff of a post-COVID era has some sectors ready for lift-off for the first time in a long time.
Evergrande – the world’s most indebted real estate company – was set to default on its interest payments earlier in the month. Evergrande produce approximately 5% of China’s apartments sold each year and contribute roughly 2% to Chinese GDP; they’re one of the biggest issuers in foreign bond markets, as well as comprising around 10% of all high-yield debt in China. Investors fretted it would be a re-run of the Lehman Brothers in 2008 and the subsequent global financial crisis (GFC). It looks like the company’s been given a chance to redeem itself (while sweating profusely) and the Chinese government has hinted that it’ll be there if everything hits the fan. The world watches with interest, with ripples expected to be felt for weeks or months, whichever way the chips fall.
The RBA announced it would taper bond buying to $4 billion per week (from $5 billion). It’s expected they’ll continue buying at this rate until February, but they have the capacity to increase or decrease before then. RBA head Phillip Lowe also rejected forecasts (from CBA) projecting an interest rate hike next year, instead looking towards 2023 at the earliest. RBA also commented on rising housing prices, which will be affected by the continued low rates, but that’s not part of the RBA remit.
The iron ore price dropped to record lows earlier in the month as China seeks to curb steel output to combat pollution. China currently buys around three quarters of the world’s iron ore. While the iron ore price has since recovered somewhat, iron miners haven’t.
Fortescue Metals (ASX:FMG), our fourth-largest iron or miner, paid out a record $11 billion dividend due to profits from the record high iron ore prices earlier in the year. Compounded with news from the drop in Chinese demand, FMG lost 35% of its share price since the end of August.
Oil price and energy stocks rose due to increased demand from Europe and China. Europe has had a surge in demand after lockdowns were lifted, while China is stockpiling oil for winter, because they had an oil shortage last winter. Hurricane Ida, in the Gulf of Mexico, crippled US oil output, further reducing global oil supply. Global supply chain issues have further created demand-pull inflation, resulting in the soaring price of oil, which should be sustained over the next few months. It’s worth remembering that the price of oil was technically negative earlier in the year, when people had to pay to store it.
Travel stocks have been increasing after announcements about lifting lockdown (QAN +10% FLT +27% WEB +12% in September), with investors expecting domestic flights to resume in October and hoping for international flights by the end of the year. Vaccination rates are playing a big part in this.
Consumer services moved from the fourth most bought sector for September last year to the second most sold this year, while retail sector sales are down for August and expected to be down for September.
It’s worth noting some of the recent comments around the housing market from the International Monetary Fund (IMF), Australian Prudential Regulation Authority (APRA), CBA CEO Matt Comyn and ANZ CEO Shayne Elliott, as well as treasurer Josh Frydenberg – all indications are that there’s likely to be a crackdown on lending, primarily for investor loans.
September and October are traditionally weaker months in the markets, which can see some good buying opportunities leading into the seasonally strong period in December and early January (aka the “Santa Claus rally”). Worth noting that if you bought on Dec 1 and sold on Jan 1 in any of the last 15 years, 80% of the time you’d have made money (but past performance and future returns… well, you know).
Christmas is coming… so we’ll see if Santa delivers. Let’s just hope he’s fully vaxxed.
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