Another Strong Week for Equities as Risk Sentiment Improves
Clarity on monetary policy, improving corporate earnings data, and increased deal-making have all contributed to the positive momentum observed in equity markets over the week, resulting in a strong set of weekly gains for the OBI portfolios. Following the long-awaited Jackson Hole Symposium, investors’ policy concerns were soothed by the Fed’s unchanged outlook for the US economy and tapering timeline, despite mixed data flows in recent months. Markets also reacted positively over the week to China stimulus optimism, as policymakers around the globe commit to sustaining the economic recovery as they emerge from the global pandemic.
Within equity markets, almost all of the equity indices in the table below edged higher, with Germany and China’s indices being the exception. In the US, large-cap companies rallied to record highs as traders favoured defensive sectors, as well as the relatively resilient technology sector, due to mixed economic data flows in recent weeks. These mixed data flows have arisen from employers struggling to fill vacancies, while activity data has also slowed from 2021 highs as the Delta variant remerges in regions in July and August. In Europe, small and mid-caps have continued to perform well, which has been the case for much of August, albeit German equities have fallen over the week. This slight fall is likely due to the index’s reforms rather than for fundamental reasons, with Germany’s index set to expand from 30 to 40 companies in September, suggesting the underperformance to the rest of Europe this week could be temporary. Japanese equities performed strongly as foreign investors returned amid abating political concerns, while China had another negative week of performance. The latest Chinese crackdown on the gaming sector, which limited under 18’s to playing video games for a maximum of 3 hours a week, caused further concern for investors.
Non-equity sectors have typically underperformed over the past week, with fixed income assets re-establishing their inverse relationship to equities following several months of moving in the same direction. The biggest faller has been Index-Linked Gilts, which experienced a selloff at the beginning of this week as investors increasingly considered the transitory nature of current inflationary pressures.
Against this backdrop, the OBI portfolios posted promising performance figures over the week. OBI 3 to 5 were boosted by their exposure to multi-asset funds and funds that focus on high-quality businesses that exhibit resilient market share characteristics. OBI 5 to 8 achieved stronger performance over the week as a result of their riskier smaller companies as well as clean energy exposure, with none of the portfolio holdings posting a loss in the weekly time frame. As a result, OBI 4 to 8 outperformed their respective benchmarks over the week.
We are pleased to report strong year-to-date performance at this stage of the year, however, we do expect markets to remain volatile as we move towards the final quarter of the year. It is important to note that market volatility is completely normal at this stage of the cycle and our outlook remains positive and unchanged looking ahead.
Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value. You may not get back all of your investment and the final value of your investment will depend on the performance of your portfolio. The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations. Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges and trading spreads. Unless stated, income is reinvested into the portfolio. The information contained in in this document is for information purposes only. It does not constitute advice or a recommendation or an offer or solicitation for investment.
Key Events We Are Watching This Week:
- Friday 3rd: US Nonfarm Payrolls data.
- Thursday 9th: ECB Meeting and Press Conference.
This Day in History
On this day, in 1666, the Great Fire of London began accidentally in the house of the king’s baker; it burned for four days and destroyed a large part of the city, including Old St. Paul’s Cathedral and about 13,000 houses.
Thank you for reading, have a great week!
Jason, Gina & Ben
