Sovereign Wealth Partners and InvestSense Pty Ltd
Looking back at September this was a risk-off month and much of the volatility seemed to emanate from the US with the S&P 500 falling by more than its developed counterparts. The most proximate cause was probably a recognition by markets that a vaccine in widespread use was more likely in mid-2021 rather than before the end of 2020. Tech stocks have risen the most and valuations are widely seen as stretched but they also suffered from technical selling related to technology investor Softbank (whose activities are now also known to have also been instrumental in the recent tech rally).
Otherwise, global energy stocks fell by another 2-5%, underperforming their underlying commodity markets as investors shunned carbon emitters with ever greater fervour. Most commodity markets (including gold) were also down by 3-4%. Most major equity markets were down by 2-4% but the associated weakness of the Australian Dollar meant that global stocks were flat for Australian investors. Japan was the only major market to buck the trend by posting a positive return. Interestingly, many traditional value investors are pointing to Japan as a prospective hunting ground with improving fundamentals and Warren Buffet combined these themes during the month making significant investments in Japanese trading houses that also gave him exposure to Australian commodities.
Bond yields were remarkably stable during the month but drifted down enough to give local government bonds a positive return of 1% while overseas bonds were flat and corporate credit slightly negative.
Until after the US election, we, like most investment professionals, are in a holding pattern until the contingencies surrounding the election are settled to some extent. These include trade relations with China (and the health of the global supply chain in general), monetary policy and its interaction with what is likely to be very expansionary fiscal policy in the US no matter who prevails. A case in point is the recently positive market action when it became much less probable that Trump would win again. Until very recently, Trump was seen to be the market friendly candidate but it now transpires that the biggest threat to markets is the uncertainty of a contested election. In that environment, and knowing how quickly things can change, we remain fully invested but vigilant.