Weekly Market Update – 27 September 2021

Global markets fall sharply at the start of the week due to China’s Evergrande situation, though markets re-coup their losses and rebound strongly.

Global markets were stronger this week, with the MSCI World Index rallying +0.43% in AUD terms.

Despite the gain, the week did not prove to unfold without any dramas.

China’s 2nd largest property developer, Evergrande, was the prominent topic last week as reports suggested the developer could default with total debts of $419 billion AUD owing.

The company was due to pay over $114 million AUD in interest to bondholders but was unable to cough up the funds on time. It now has an additional 30-day grace period to pay the funds or else it will default.

As a result, investors were taken aback by the escalating crisis as the collapse could pose systematic risks to China’s economy and send potential shockwaves that could reverberate throughout other economies.

As a result, the ASX200, Nasdaq and the S&P500 all fell over -1% on Monday’s trade before recovering and even adding some at the tail-end of the week.

RBA Minutes

In minutes following the bank’s meeting held on September 7th, the board seemed to repeat familiar themes from the past.

The central bank reiterated its commitment to maintaining highly supportive monetary conditions to ensure Australia returns to full employment sooner rather than later.

Rates would once again remain at 0.10 per cent and will not be increased until inflation is sustainably within the 2-3 per cent range, which the bank views will not occur until 2024 at the earliest.

The bank acknowledged that the recent outbreaks of the Delta variant across NSW and VIC had materially impacted the progress of economic recovery to a greater extent than originally anticipated by the Board.

Recent movement and business restrictions had added to the uncertainty of the outlook, though the board expressed that the outbreaks had only delayed, but not derailed, the recovery back towards pre-pandemic levels and that the race to vaccinate alongside the easing of restrictions will greatly assist in the bounce-back of the local economy.

The bank also discussed the implications of the outbreak on its bond-purchasing program and ultimately concluded that bonds would continue to be purchased at the recently announced rate of $4 billion per week until the middle of February in 2022. Furthermore, the board would continue reviewing the program keeping in mind any changes in economic or health conditions that may impact the progress towards full employment and its inflation target of 2-3 per cent.

Internationally, members of the board observed recent weaker than expected economic activity out from China as the nation continues to enforce its COVID-zero strategy which has weighed on economic activity from a trade perspective. 

Recently introduced regulatory changes aimed at reducing demand for China’s red-hot property market alongside new leverage restrictions for real estate developers had been observed by the board and created concerns surrounding the nation’s financial stability.

Federal Reserve Meeting

Last week’s Federal Open Market Committee (FOMC) displayed a more hawkish tone than we have grown accustomed to.

The headline from the meeting was that monetary policy would remain unchanged, with the target rate for funds remaining at a record low of 0-0.25 bps.

The US’s growth forecast was downgraded due to the spread of the Delta COVID-19 variant with it now expected to expand at a rate of 5.9%, down from a rate of 7% which was forecasted back in June.

In the speech on Wednesday, Powell indicated that the tapering of bond-purchases could occur as soon as the Fed’s next meeting in November as the US economy continues to make significant progress towards the central bank’s goals of maximum employment and average inflation of 2 per cent.

On inflation, the Fed also amended its projection for inflation figures, now anticipating for it to shoot well above the 2% target range previously expected earlier in the year.

The board is now predicting an annual inflation rate of 4.2% by this year’s end.

Due to this, a growing number of Federal Reserve officials are now anticipating an increase in the interest rate rise in 2022, with 9 of the 18 members signalling that they are ready to raise rates in response to higher inflation forecasts.

For reference, only seven officials in June of this year were forecasting a rise in 2022.

All eyes will now be set on September’s jobs which will dictate how true Powell’s comments of employment standards not being ‘met’ truly are.

Powell expressed that September’s job report does not have to prove to be ‘super-strong’ indicating that satisfactory figures could kick-off the tapering of its quantitative easing program.

ASX Weekly Wrap

The ASX200 suffered a rough start to trading last week, with the index falling -2.1% on Monday as investors absorbed news concerning China’s property group, Evergrande, which was thought to be heading for bankruptcy after reports suggested an impending collapse.

Despite the news, the market responded strongly following the slip on Monday with the index closing only
-0.65% down in total.

Once again, investors seemed to favour exposure to the energy sector resulting in the index being the strongest performer, it rallied +4.9% and our preferred exposure in the space Santos Limited (STO) added a healthy +6.2%.

Similarly, miners once again tracked the weakness of iron ore as demand from China continues to soften, the materials index fell -2.65% for the week.

In broad market news, Ausnet Services (AST) found itself at the centre of a bidding war last the week after the company received a non-binding proposal from foreign-owned Brookfield Asset Management on Monday to acquire all shares in the company for an indicative cash price of $2.50 per share, representing a 26% premium to AST’s share price of at the time of $1.98.

The following day, Ausnet Services received a takeover bid from rival energy provider, APA Group (APA) to acquire all shares in the company at a price of $2.60 paid through APA stock and cash – an offer which may or may not prove better than Brookfield’s’ considering it will ride on the energy provider’s share price in the coming weeks.

In term of our portfolios, Newscorp (NWS) continues to be one of our core holdings and notched an impressive +10.29% gain for the week following the company announcement that it would be doubling its buy-back program to an amount of $1 billion USD fund through the company’s robust cash balance and strong ability to generate free cash flow.

The worst performer within portfolios was Northern Star Resources Limited (NST) which traded unpleasantly on Friday closing -4.26% down as the gold price dropped post the Fed’s hawkish meeting which indicated a timeline of its taper plans.

Looking ahead

Monday 27th September 2021 – Friday 1st October 2021

  • Monday: US Durable Goods Orders (AUG)
  • Tuesday: N/A
  • Wednesday: UK Mortgage Lending (AUG), Mortgage Approvals (AUG)
  • Thursday: AU Private Sector Credit (AUG), US Initial Jobless Claims (SEP), GDP Growth Rate (Q2), UK Current Account (Q2), GDP Growth Rate (Q2)
  • Friday: AU Home Loans (AUG), US Personal Spending (AUG), Personal Income (AUG)

Friday 24th September, 5pm values

 IndexChange%
All Ordinaries 7649-54-0.7%
S&P / ASX 2007342-62-0.8%
Property Trust Index1636-29-1.7%
Utilities Index6023+221+3.8%
Financials Index6638-91-1.4%
Materials Index15015-409-2.7%

Friday 24th September, closing values

 IndexChange%
U.S. S&P 5004455+22+0.5%
London’s FTSE7051+87+1.2%
Japan’s Nikkei30248-252-0.8%
Hang Seng24192-729-2.9%
China’s Shanghai3613-1-0.0%

Key dividends

Monday 27th September 2021 – Friday 1st October 2021

  • Monday: N/A
  • Tuesday: Div Ex-Date – NAB Capital Notes 2 (NABPD)
    Div Pay-Date – Altium Limited (ALU), Amcor CDI (AMC), Coles Group Limited (COL), Evolution Mining Limited (EVN)
  • Wednesday: Div Ex-Date – Centuria Industrial REIT (CIP), Centuria Office REIT (COF)
    Div Pay-Date – AGL Energy Limited (AGL), ASX Limited (ASX), Commonwealth Bank of Australia (CBA), Northern Star Resources Limited (NST), VGI Partners Global Investments Ltd (VG1)
  • Thursday: Div Pay-Date – Bendigo and Adelaide Bank Limited (BEN), CSL Limited (CSL), Fortescue Metals Group Limited (FMG), Regis Healthcare Limited (REG), Ramsay Health Care Limited (RHC), WCM Global Growth Ltd (WQG).  
  • Friday: Div Pay-Date – L1 Long Short Fund Limited (LSF), Origin Energy Ltd (ORG), Spark New Zealand Limited (SPK), Treasury Wine Estates Ltd (TWE)

Contact

Mark Johnson – Chairman of Investment Committee(03) 8825 4738
Guy Silbert – Investment Manager(03) 8825 4750

If you would like to discuss your situation, please speak to your adviser or email clientservices@primefinancial.com.au

Mark JohnsonT: (03) 8825 4738Cameron MorcherT: (03) 8825 4737
Livio Caiolfa T: (03) 8825 4748Michelle BromleyT: (03) 8825 4751
Marcus AingerT: (02) 9134 6292Nicole LewisT: (03) 8825 4734
Dylan CresswellT: (03) 8825 4707Nicholas Miller T: (03) 8825 4722
Jarrod Rodda T: (03) 8825 4729Gina McIntoshT: (07) 3557 2557

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.

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