Downside volatility returned to markets in September, with concerns over a second Coronavirus wave in Europe, a US presidential election looming and a bifurcated market resulting in global equities falling 2.9% over the month.
European governments have reintroduced lockdown measures to try to counteract the rise in virus cases which has put pressure on the already struggling sectors of retail, hospitality and leisure. Global monetary and fiscal stimulus remain accommodative and will be for some time to come, with central bankers expressing their desire to get inflation above 2% in the short term. However, the $2.2 trillion US fiscal package that is currently proposed by the Democrats to help the US economy recover, looks set to be rejected by the Republican led Senate.
Much of the source of market volatility is derived from the price movements within the US tech sector. After an amazing rally year to date, the NASDAQ, fell 10.5% in the first 3 weeks of September before rallying to finish 5.7% down on the month. The price action dragged on the performance of the S&P 500, which fell 3.8% during the month, however due to Sterling’s (3.8%) fall against the US Dollar over the period this loss was only 0.4% in Sterling terms.
Sterling has been impacted by the ongoing machinations surrounding Brexit and whether a deal between the UK and EU can be reached. The uncertainty continues to materially overhang UK company valuations and the perceived attractiveness of investing in the UK without clarification. Tobacco companies led the UK market during the month, with British American Tobacco returning 9.7% and Imperial Brands 9.1%, compared to the -1.7% fall of the FTSE ALL Share index. The broad UK index was hurt by Oil & Gas (-13.2%) sector which was impacted by the Brent Crude oil price which fell -7.9% over the month.
With increased uncertainty it is unsurprising that investors sought ‘safety’ within fixed income. The FTSE Actuaries index of UK Conventional Gilts rose 1.5% in the month to reduce the loss over the quarter to -1.2%, whilst the IBOXX UK index of Sterling Corporate debt rose 0.6% over the month. Gold fell 4.2% over the month, reducing the gain over the quarter to 3.6%.
The MSCI Europe ex UK fell -0.8%. Italian (-3.8%) and Spanish (-3.7%) markets were laggards, with Growth (0.8%) stocks performing better than Value (-2.6%) stocks over the month. In Asia, Chinese (-2.8%) and Hong Kong (-5.2%) equities took a step back even as data continues to suggest that economies are recovering. However, Korea (1.5%), India (0.9%) and Taiwan (0.7%) limited the losses in the region with the MSCI Asia Pacific ex Japan returning -2.1% and MSCI Emerging Markets -1.6% over the month.
Chief Investment Officer