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11 Nov 2021

Markets in a nutshell — October 2021

Global equities rebounded after retracing in September. Investors shrugged off recurring evidence of supply-chain bottlenecks and possible peak in corporate margins, choosing instead to focus on stellar (though backward looking) third-quarter corporate earnings prints.

Although emerging markets lagged, Chinese bourses gained on a reprieve in US/China geopolitical tensions. The abatement of new regulatory pressures and diminishing Evergrande related contagion risks also helped Chinese equities.

We currently see considerable opportunity in Chinese equities, despite the volatility. The managers have invested an appropriately sized portion of the funds in what we believe are high quality, consumer-focused companies that should compound earnings over the medium to long term.

The US 10-year bond yield was flat, despite US Fed Chairman Powell acknowledging that inflation pressures might well be less transitory than previously thought. Debt markets appear to be under pricing the increasingly probable November start to the US Fed tapering program and likely rates lift-off during 2022. The US dollar was weaker against the British pound, neutral against the euro and stronger against the yen.

Prices for industrial commodities, iron ore, copper and oil moved higher as broad based supply shortages continued against a backdrop of robust demand. Gas prices fell sharply on potential Russian supply increases, while thermal coal also retraced on Chinese price interventions. Precious metals platinum, palladium, silver and gold ended the month higher.

In South Africa, equities were led higher by the resources sector. Industrials also showed strength while financials were pulled lower by a retracement in the banks. The rand weakened on net foreign selling and global investors positioning for a moderation of the prevailing accommodative US monetary policy.

Foreign assets were the largest contributor to the Foord fund returns on strong performance from global equities and a weaker rand. Top contributors included a rebound in the fund’s Chinese holdings on improving sentiment and the allocation to the materials sector as inflation concerns drove commodity prices higher.

The SA equity component was positive, but underperformed the market index given the relatively low domestic resources weight and some consolidation in core holding Aspen after strong recent gains. The All Bond Index fell, with short and medium-term yields rising in anticipation of higher short-term rates. The funds’ core holding in the short and medium-term sector underperformed as the yield curve flattened, with yields on longer dated maturities holding steady.

Given the increasing risk of rising inflation in the years ahead, the Foord funds have a meaningful allocation to companies with long-term pricing power. This is carefully balanced by good liquidity and some embedded protection given the potential for nearer term market volatility. The funds are well positioned to protect investor capital through volatile markets and deliver meaningful real returns over the full investment cycle.


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‘Markets in a nutshell’ is Foord Asset Management’s monthly overview of market movements.

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