Share markets fell back in September as confidence took a knock. The previously relentless US S&P 500 drifted downwards from a new high on 6th September. Equity markets took their cue from bonds, which sold off as concerns mounted that inflationary pressures will not be as fleeting as widely assumed. Energy prices have been buoyant and there are signs that wages are increasing. Sentiment was also hindered by an increasingly likely delay to President Biden’s infrastructure spending plan.
Meanwhile, it emerged that troubled Chinese real estate giant Evergrande could cause wider turmoil. Evergrande, which is a major player in the provision of housing for better-off Chinese citizens and has branched out in a range of property and industrial activities, looks set to default on some of its $300bn of borrowings.
To become the second largest property developer in China Evergrande has borrowed heavily, using cheap debt to finance countless apartment blocks and houses. Since regulators started cracking down on debt last year – in order to stop runaway house price inflation – Evergrande has been trying increasingly desperate means to stay afloat.
It looks unlikely Evergrande can survive in its current form, making its shares worthless, but it is the wider fallout investors are concerned about. If it defaults there are significant ramifications for suppliers, construction contractors and ordinary people who have put down deposits on Evergrande homes or money into its spin off financial products. Lenders too stand to lose a lot of money.
Will the Chinese government stand by and let it fail altogether? It’s uncertain because China’s bankruptcy laws are nascent, and there are no precedents for bailouts at this scale. However, there is likely too much at stake for unwitting local construction companies and private citizens for authorities to risk a messy blow up. On the other hand, other creditors may be less well protected, especially overseas bond holders and lenders. Whatever transpires there could be significant consequences across China’s real estate sector, not to mention a knock-on effect on consumer confidence.
Chinese construction is also influential to the price of many commodities, notably iron ore which is the key ingredient in steel. This has plummeted more than 20% since the beginning of September and by half since mid-July. Resource-laden funds suffered over the month as did commodity sensitive Latin American markets.
At the other end of the price action spectrum in commodities was energy, notably natural gas which has risen rapidly this year all over Europe; however, it is most acute here in the UK, where the gas price is four times what it was at the beginning of the year. There was malaise for energy providers that hadn’t hedged their exposure to prices. The few fund beneficiaries were energy specialists or those with heavy exposure to energy exporter Russia. While gas price rises have hit Europe hard, in China the rising price of coal has caused an energy crunch which has led to power shortages, another potential drag on industrial production and growth.
Asia was, however, home to a particularly bright spot during the month. Finally recovering its ‘lost decades’, Japanese markets rallied to thirty year highs as its much-criticised prime minister resigned. The change of PM has enforced the view that the current ruling coalition will continue, reducing political risk, plus there are hopes that they will spend big to boost the economy. Expectations for economic reopening are also on the rise with an accelerating vaccine roll out and restrictions on domestic travel and restaurant dining now easing.
Although investors should be aware past performance is not a reliable indicator of future results, here are the top and bottom ten Investment Association (IA) funds and sectors* for September 2021 in full:
Top 10 funds:
Bottom 10 funds:
Top 10 sectors:
Bottom 10 sectors:
Past performance is not a reliable indicator of future returns. Figures are shown on a % total return basis, bid to bid price with net income reinvested; Source: FE Analytics, data for September 2021: 31/08/2021 to 30/09/2021. Onshore and retail open-ended funds only.
*There are several thousand funds on sale in the UK. The Investment Association divides these into over 40 ‘sectors’, broad groupings that help investors and advisers compare funds of similar types before looking in detail at individual funds.
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
September's top and bottom performing funds
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