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04 Oct 2024

MARKETS IN A NUTSHELL — FOR SEPTEMBER 2024

All asset classes jumped in September after the US Federal Reserve commenced its rate-cutting cycle more aggressively than expected. Emerging markets and commodities rallied strongly when the Chinese government announced meaningful stimulus, but oil fell despite the dramatic escalation of tensions in the Middle East.

Chinese equities soared 24% after the authorities finally announced comprehensive economic stimulus measures. These included lowering reserve requirements to boost banks' lending capacity, reducing policy rates to stimulate economic activity, and decreasing mortgage rates to support existing borrowers. Fiscal stimulus — likely involving the issuance of ultra-long-term bonds to finance critical infrastructure projects — was also proposed.

China also introduced measures to provide liquidity for institutional investors and to assist listed companies with share buybacks — directly supporting the beleaguered Chinese equity markets. This was noteworthy, because, unlike the US, China typically avoids policy measures designed to prop up markets. The policy shift seems to have lured previously hesitant global investors back into the Chinese market for now. 

The market rally reflects relief at the magnitude of the stimulus and the exceptionally low valuations of Chinese equities. There were global repercussions. Stimulus measures that boost China's economy are likely to benefit commodity prices, aiding commodity-producing countries. 

While China was the focal point, given the outsized gains, most regions and asset classes performed well. The US rate cuts boosted interest rate-sensitive assets at home and abroad. Bond markets advanced globally, US share markets again hit all-time highs, and gold bullion also set a record.

The dollar weakened against most currencies. Oil prices declined nearly 10% — briefly dipping below $70 per barrel — on lower demand from China amid slower economic growth and the government's significant push for electric vehicles.

Overall, September was a good month for the Foord global funds, which have judicious exposure to the Chinese market. Our global equity strategies performed near the top of their respective peer groups, with the Foord Asia ex-Japan fund surging 20.7%. The Foord International Fund also produced meaningful absolute returns. 

Looking back at US rate-cutting cycles over the past 70 years, share prices have often come under significant pressure if rate cuts are made into a slowing economy — signalling underlying issues that can lead to reduced corporate earnings and lower stock valuations. However, US stocks are continuing to hit all-time highs. This suggests that the market believes the Federal Reserve's larger-than-expected rate cut is a proactive move to prevent a labour market downturn before it happens, rather than a reaction to existing economic distress.

How the US share market performs from this point on, is highly dependent on whether the Fed can indeed execute a soft economic landing. If so, the record-high valuations may be justified. However, if economic indicators deteriorate despite the rate cuts, markets could face considerable downward pressure.

The good news is that we’re likely to continue to see the opportunity set broadening outside of the US and into other asset classes as rates continue to ease — something we’ve been waiting for. Volatility is still on the cards, especially with the upcoming US elections and the geopolitical tensions and growing conflicts we’re seeing. But at least the choices for creating resilient portfolios are looking far better than they have for a long while.

 

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After robust gains in September, most equity sectors retraced in October as attention increasingly focused on the US elections. Share markets in Europe fell more on growth worries and euro weakness. Emerging markets…

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MARKETS IN A NUTSHELL — FOR OCTOBER 2024

In our monthly podcast, ‘Markets in a nutshell’, Linda Eedes unpacks the latest market trends and insights from October. Linda breaks down the US market dynamics, gold’s record-breaking run and China’s new policies…

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