11.09.21

September 2021 Investment Summary

For our September 2021 Investment Summary, we take a closer look at the latest news and market trends we are seeing take place this month.

All good things come to an end. The seven-month winning streak for stocks was stopped abruptly in September as the S&P 500 fell just over 4% for the month and the NASDAQ nearly 5%. In Europe, the FTSE 100 fell 0.5% whilst the Eurostoxx 50 was off over 3.5%. Asia fared better as the Nikkei 225 was up nearly 2% and the CSI300 (Shanghai Shenzen) rose just over 1.25%, but both closed well off their intra month highs.

The issues we highlighted last month namely: the Fed (tapering), the delta variant’s impact on activity (supply chain problems), China (Evergrande) and inflation combined to scare investors and some even suggested we were in or entering a period of stagflation. Energy prices and potential energy shortages (a spinoff of Covid related supply chain issues, coupled with weather related problems) also rose to prominence and spooked the markets. All of the aforementioned concerns remain, and these will continue to have economic impacts in the near term. But they are less threatening for the long run and do not suggest an impending recession or the advent of stagflation.

Let us touch on inflation, the Fed and other central bank’s tightening plans. August inflation figures did not provide any real evidence to suggest that the transitory inflation spike was coming to an end. In his recent testimony to the US Congress, Fed Chairman Powell admitted that inflation was staying higher for longer than they had anticipated. US headline CPI posted a 5.3% increase in August and the Fed’s preferred measure of inflation, the core PCE price index, rose 3.6% year-on-year and has now been over 3% for five consecutive months. For the previous ten years, it has never been consistently above 2%. German inflation figures rose to 4.1% for August and for the Eurozone it was 3.4%. Markets are beginning to get nervous that central banks may have to act sooner and more forcefully. Ten-year yields on US treasuries rose nearly 30 basis points at one point during the month. This may have weighed on equities. It was disturbing for balanced portfolios that fixed income provided little if any protection to equity price declines.

Well, is this it? Do risk assets continue lower from here? Is the best of 2021’s returns behind us?

Tough questions. We do not think so, but this month and this quarter may prove to be more volatile than the first three quarters of the year were.

Firstly, China is going to continue to be a concern. The Chinese government has embarked (justifiably in our opinion) on a policy of reducing the economy’s reliance on debt and rampant credit growth. Home building has been a large part of Chinese growth over the last decade and it has certainly relied on reckless lending, and the belief that home prices only rise (where have we seen that before?). The challenge for the authorities is to reduce this growth without engineering a rapid house price fall and construction contraction that damages the broader economy. There is no easy way to manage this. The Chinese authorities can and will force the large state-owned banks to rollover existing debt (no matter how dubious) to prevent a full-on credit crisis. They will certainly take measures to stimulate other areas of the economy.

Do not be surprised if the Chinese currency begins to weaken, in an attempt to try and stimulate exports. However, whatever they do, short of giving up on slowing the housing and real estate markets they will not be able to fully offset the slowdown in activity that is occurring.

Secondly, energy price concerns are going to remain with us through the winter. A dangerous cocktail of reduced investment in energy extraction, weather related issues with renewable energy production and other Covid supply chain issues have created a shortage in natural gas that can’t be quickly replaced. Prices will likely go higher for oil and certainly natural gas. This will hurt activity and keep headline inflation high. Let us hope it is a mild winter in the northern hemisphere.

Winter is of course seasonal so the energy problem should naturally go away. China is not seasonal and events there need closely monitoring. If they do not take measures to stimulate other parts of the economy, we would become more cautious regarding the outlook for the country.

As we move into the final quarter of 2021, we believe that central banks will remain very friendly. The Fed reducing their purchases of longer-term securities will be measured and is, for the most part, factored in by the markets. No major central bank will be raising rates, certainly in the short-term. Labour markets remain tight, personal income and balance sheets are strong. Businesses need to rebuild inventories and boost capex. World economic growth will remain above trend, even as it slows from its pandemic re-opening highs. Stagflation is not on the horizon. We still favour equities and view near term weakness in prices this quarter as an opportunity to put cash to work.

Read more from our Chief Investment Officer Jeff Brummette in our August 2021 Investment Summary. Stay tuned for more insights from Oakglen on the hot topics and latest trends in the financial markets. You can also sign up to our mailing list for more regular communications using the section below.

Jeff Brummette
Chief Investment Officer

Disclaimer

This document is distributed by Oakglen Wealth Limited and / or Oakglen Wealth (Jersey) Limited (hereafter “Oakglen”) to you for your information and discussion only. Unless otherwise stated nothing in this document constitutes investment, legal, accounting, real estate, conveyancing, surveying or tax advice, or a representation that any investment is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. It is not a solicitation or an offer to buy or sell any security or other financial instrument. Any information including facts, opinions or quotations, may be condensed or summarised and is expressed as of the date of writing. The information may change without notice and Oakglen is under no obligation to ensure that such updates are brought to your attention. The price and value of investments and any income that might accrue could fall or rise or fluctuate. The price of shares and income from them may fall as well as rise and is not guaranteed. You may not get back the amount of your original investment. A change in the economic environment, possible changes in the law and other events may cause future performance to deviate from that expressed or implied in this document. Please note that past performance, simulations and forecasts are not a reliable guide to future returns. If an investment is denominated in a currency other than your base currency, changes in the rate of exchange may have an adverse effect on value, price or income. Investing in Packaged Retail and Insurance-based Investment Products (PRIIPs) carries a high level of risk and may not be suitable for all investors.

Any information provided by a client and used to produce this document will have been checked by Oakglen for plausibility only and the client notified accordingly of any obvious anomalies. This document and any related recommendations or strategies may not be suitable for you; you should ensure that you fully understand the potential risks and rewards and independently determine that it is suitable for you given your objectives, experience, financial resources and any other relevant circumstances. You should consult with such adviser(s) as you consider necessary to assist you in making these determinations. The opportunities and risks associated with each investment product can be found in the relevant underlying securities prospectus and any other supplementary documents. All documents will be made available at any time upon request.

Oakglen does not advise on the tax consequences of investments, and you are advised to contact a tax adviser should you have any questions in this regard. The levels and basis of taxation are dependent on individual circumstances and are subject to change. This document may relate to investments or services of an entity/person outside the United Kingdom, or to other matters which are not regulated by the Financial Conduct Authority, or in respect of which the protections of the Financial Services Compensation Scheme. Further details as to where this may be the case are available on request in respect of this document. Additionally, this document may relate to investments or services of an entity/person outside Jersey, or to other matters which are not regulated by the Jersey Financial Services Commission, or in respect of which the protections of the Jersey Financial Services Commission for retail clients. Further details as to where this may be the case are available on request in respect of this document.

This document has been prepared from sources Oakglen believes to be reliable, but we do not guarantee its accuracy or completeness and do not accept liability for any loss arising from its use. Oakglen reserves the right to remedy any errors that may be present in this document. Oakglen, its affiliates and / or their employees may have a position or holding, or other material interest or effect transactions in any securities mentioned or options thereon, or other investments related thereto and from time to time may add to or dispose of such investments.

This document is intended only for the person to whom it is issued by Oakglen. It may not be reproduced either in whole, or in part, without our written permission. The distribution of this document and the offer and sale of the investment in certain jurisdictions may be forbidden or restricted by law or regulation. This communication does not constitute the solicitation of an offer to purchase or subscribe for any investment or service in any jurisdiction where, or from any person in respect of whom, such a solicitation of an offer is unlawful.

Investments may have no public market or only a restricted secondary market. Where a secondary market exists, it is not possible to predict the price at which investments will trade in the market or whether such market will be liquid or illiquid. As such, for investments not listed or traded on any exchange, pricing information may be more difficult to obtain, and the liquidity of the investments may be adversely affected. A holder may be able to realise value prior to an investment’s maturity date only at a price in an available secondary market. The issuer of the investment may have entered into contracts with third parties to create the indicated returns and/or any applicable capital protection (in part or in full). The investment instrument's retention of value is dependent not only on the development of the value of the underlying asset, but also on the creditworthiness of the Issuer and / or Guarantor (as applicable), which may change over the term of the investment instrument. In the event of default by the issuer and/or Guarantor of the investment, and / or any third party the investment any income derived from such contracts is not guaranteed and you may get back none of, or less than, what was originally invested. Parties other than the Issuer or Guarantor (as appropriate) mentioned in this document (for instance the Lead Manager, Co-structurer, Calculation Agent or Paying Agent) do neither guarantee, repayment of the invested capital nor financial return on the investment product, if nothing is indicated to the contrary. Any capital protection given is usually an inherent part of the product; provided through the use of options, futures or other derivative products. You may have to accept smaller returns on an investment relative to a direct investment in the underlying index, basket, etc. because of the costs involved in providing the capital protection. Such capital protection normally only applies if the investment is held until maturity. The amount of initial capital to be repaid may be geared, which means that a fall in the underlying index or securities may result in a larger reduction in the amount repaid to investors. Alternative investments, derivatives or structured products are complex instruments that typically involve a high degree of risk and are intended for sale only to investors who are capable of understanding and assuming the risks involved. Structured products carry counterparty risk, in that in the event of default by the issuer you may lose some or all of your capital invested even when the product carries capital guarantees. Where this document relates to emerging markets, such investments should be made only by sophisticated investors or experienced professionals, who have independent knowledge of the relevant markets, are able to consider and weigh the various risks presented by such investments and have the financial resources necessary to bear the substantial risk of loss of investment in such investments.

The services described are provided by Oakglen or by its subsidiaries and/or affiliates in accordance with appropriate local legislation and regulation. Certain products and services may not be available in all locations or to all Oakglen clients.

Data Source: Oakglen Wealth (Jersey) Limited and Oakglen Wealth Limited, otherwise specified.

Oakglen is a registered business name of Oakglen Wealth (Jersey) Limited and Oakglen Wealth Limited.

Oakglen Wealth (Jersey) Limited is regulated in Jersey by the Jersey Financial Services Commission for the conduct of Investment Business and is a limited company with company number 121454, incorporated in Jersey on 7 June 2016. Its business address is 4th Floor, 1 IFC, St Helier, Jersey, JE2 3BX.

Oakglen Wealth Limited is authorised and regulated by the Financial Conduct Authority. The registered address of Oakglen Wealth Limited is 30 Golden Square, London, United Kingdom, W1F 9LD and is registered in England and Wales with number 13182724.