z-kolkiemz-kolkiem

The week in review

The week of 25 October finished with Hallowe’en which proved apt given the behaviour of markets was aligned to that of children going trick or treating – you were never quite sure what you’re going to get due to disappointing data against a backdrop of broadly positive corporate earnings.
Share on facebook
Share on linkedin
Share on twitter
Share on email
Published 2 November
4 mins

What’s happened in markets?

KEY MARKET MOVEMENTS (% change)
 1WK1MO3MOYTD1YR3YR5YR
FTSE All Share0.511.823.5215.5935.345.585.62
Euro Stoxx 501.525.204.3322.5647.3113.2910.26
S&P 5001.357.015.1324.0342.8921.4818.93
Japan Topix-0.05-1.436.0713.0029.309.259.96
MSCI Asia Pac.-2.151.36-0.60-2.1413.1014.2811.07
MSCI Emerg. Mkts.-2.181.00-0.42-0.1517.2912.679.76
Jo’burg All Shares0.625.150.1418.1136.0512.729.57
UK Gov’t Bonds2.512.15-2.43-5.41-4.313.412.42
US Gov’t Bonds0.53-0.07-1.33-2.56-2.455.042.44
Global Corp. Bonds0.51-0.08-1.27-0.911.746.814.50
Emerg. Mkt. Local-0.36-1.10-3.86-7.36-0.064.332.45

Figures in the respective local currencies as at the end of trading on 29/10/2021.

In a week that spoke to a key tradition of Hallowe’en, where children are given treats to avoid them playing tricks, the disappointing US Q3 gross domestic product (GDP) data underlined the backdrop affecting the world’s biggest economy. And, although the number came in below expectations at an annualised 2%, lower than the anticipated 2.7% and a dramatic drop from Q2’s 6.7%, it was not a surprise to many given the tricks already served up in the form of inflation, labour shortages, slower consumer spending and supply chain disruptions.

A treat, however, was the expectation that Q4 data will be a lot brighter as Delta variant cases have already come down a lot and the vaccination programme is going well, with approval now extended to Pfizer to inoculate 5 to 11 year olds. The positive forecasts are already apparent in the purchasing managers’ index data (PMI) for the country.

In politics and policy, we saw an upbeat UK chancellor of the exchequer share the independent prediction of the fastest growth for the country since 1973 (up 6.5% versus the earlier projection of 4.0%), which contrasted with the downbeat European Central Bank (ECB).

Although those watching the UK budget could have been forgiven for believing it was not the Conservative party pledging to high fiscal spending, due to the more generous GDP forecasts, others quickly referenced the news that 2022 will see the return to more normal growth, which would come in under the 2% level due to Brexit and pandemic scars.

Meanwhile, the ECB’s Lagarde spoke at its monetary policy session and downplayed any interest rate rises being priced in by markets towards the end of next year. In trying to convince others that rates will increase, she was confident that inflation will be transitory and is set to come down sharply, despite predictions that October’s final inflation announcement on 17 November may see price hikes breach the 4% mark for only the second time ever if they follow the preliminary number for the month of 4.1%.

However, corporate earnings numbers remain broadly positive, with about half of the S&P 500 having released their results and about 80% having beaten analysts’ expectations. With Amazon and Apple publishing disappointing numbers, Microsoft then overtook Apple as the most valuable company in the world as it delivered better numbers, joining the ranks of Alphabet (Google), Caterpillar, General Electric and UPS.

In the equity market in the past 30 days, we have seen broadly positive performance, especially in developed (+0.8%) versus emerging (-2.2%) markets, with many of the former’s indices closing at new all-time highs as the ongoing saga of Evergrande weighed. More generally, growth (+1.4%) and large capitalisation (+0.6%) stocks outperformed their value (-0.6%) and small capitalisation (-0.3%) peers over the past month. The best sector performance was posted by consumer discretionary (+1.8%), while the worst was energy (-1.5%).

ECONOMICS  
 Latest

Consensus

Forecast

UK GDP (QoQ)5.5
UK PMI56.856.8
UK CPI (YoY)3.1
EU GDP (QoQ)2.2
EU PMI54.354.3
EU CPI (YoY)4.1
US GDP (QoQ)2.0
US PMI61.962.0
US CPI (YoY)5.4

What’s happened in portfolios?

The themes playing out in portfolios mirror the previous weeks as we continue to face a more favourable environment for equities versus the fixed income asset class, where we have our biggest underweight. As a result, this sees our positioning summed up as: limited exposure; shorter duration; and focused on credit markets. We believe these fixed income assets are most likely to benefit from the economic recovery.

To reinforce this position, we invested in a new fund in the short duration space run by the managers Lord Abbett, which are one of the oldest money management firms in the US, having been founded in 1929.

The fund is of a higher quality than existing fixed income strategies and is truly a short duration position. While maintaining a short effective duration, it also has a short spread duration, which limits both interest rate and credit sensitivity. This balance between credit and spread duration has proven sufficient to weather headwinds caused by rising rates or widening spreads, and is an important element of the funds returns.

The fund follows a flexible multi-sector, value-focused approach, investing largely in investment grade, as well as mortgage and asset-backed securities. They like these securitised assets because of the attractive valuations and since many of the investments’ default rates have historically been low. And because securitised assets have a complexity premium attached, you tend to get paid a bit more than you might for a comparable credit quality in the corporate space. As such, an AAA Commercial Mortgage-Backed Security offers about the same yield as a single A- corporate bond.

The fund also acts as a good portfolio diversifier and the management team actively rotate sector exposure based on its assessment of relative value, combining top-down macro analysis and bottom-up analysis, which uses a blend of quantitative and fundamental research.

What's happening this week?

3 Nov • US Federal Reserve Interest Rate Decision | 4 Nov • UK Bank of England Interest Rate Decision | 4 Nov • EU Markit Composite & Services PMIs

Clients of Nedbank Private Wealth can get in touch with their private banker directly to understand how their portfolios are responding to market events, or call +44 (0)1624 645000 to speak to our client services team.

 

If you would like to find out more about how we manage clients’ investments, please contact us on the same number as above. Or you can get in touch using the links to the forms towards the end of this page.

Sources: Nedbank Private Wealth and (1) Bloomberg; (2) Reuters; and (3) IHS Markit.

The value of investments can fall, as well as rise, and you might not get back the original amount invested. Exchange rate changes affect the value of investments. Past performance is not necessarily a guide to future returns. Any individual investment or security mentioned may be included in clients’ portfolios and is referenced for illustrative purposes only, not as a recommendation, not least as it may not be suitable. You should always seek professional advice before making any investment decisions.

Access more of our insights

Investing

The week in review

29 Nov

   |   5 mins

Forward-looking economic data signalled stronger growth in the last full week of November, but concerns over a new COVID-19 variant quickly clouded the outlook.

Investing

The week in review

16 Nov

   |   5 mins

Global inflation dominated news headlines during the week of 8 November, with US prices rising at their fastest rate since 1990, up 6.2% annually, in the face of persistent supply shortages - supply issues that also impacted UK Q3 economic growth.

Investing

What happened in financial markets in October 2021

9 Nov

   |   6 mins

Marking the first in a new series of monthly videos, Rebecca Cretney spoke to Tom Caddick about the positive and negative news affecting financial markets during October 2021 and what that meant for clients’ investment portfolios.

Investing

The week in review

9 Nov

   |   3 mins

Optimism around a strong Q3 earnings season and rising US employment created a positive environment for riskier assets and equities in the week of 1 November.

Get in touch

If you are interested in becoming a client, please complete the form via the ‘become a client’ button below. Alternatively, if you are already a client, or if you have a question about how we help clients in particular circumstances, please use the ‘contact us’ button.

 

We will get back to you as soon as we can during office hours, which are Monday to Friday, 8am to 8pm (UK time), except for UK public holidays.

Become a Client

Thank you for your interest in Nedbank Private Wealth. Please call us on +44 (0)1624 645000 or complete the requested information and one of our team will get back to you soon. We look forward to speaking with you.  Please note: If you are an EU resident, we are unfortunately unable to offer our services to you at present.

* Required fields

Contact Us

Please call us today on +44 (0)1624 645000. Our office hours are weekdays from 8am to 8pm (UK time), except for UK public holidays.

 

Or please complete and submit the below form and one of the team will get back to you as requested.

* Required fields

Search suggestions