Prudential Investment Managers

Prudential Investment Managers

October 2021

VIDEO: Market Snapshot September 2021

Our Market Snapshot provides an overview of key events that influenced financial markets over the course of September 2021.  

Equity markets were broadly negative in September over concerns that central banks were preparing to scale back on stimulus measures. In the US, hawkish comments from the Federal Reserve sparked a sharp increase in longer-dated bond yields, prompting a global sell-off of riskier assets. Contributing to this risk-off sentiment were events in China, where growth concerns escalated on the back of the government’s latest regulatory moves, and the liquidity crisis at Chinese property group, Evergrande, which threatened to spill over into the broader economy. In South Africa, better-than-expected GDP growth for Q2 was not enough to offset the global risk-off sentiment, which was further compounded by a weaker Resources sector.

Looking at global equity market returns (all in US$), the MSCI All Country World Index returned -4.1% for the month. Emerging markets marginally outperformed developed markets, with the MSCI Emerging Markets Index delivering -4.0% and the MSCI World Index returning -4.1%. The Bloomberg Global Aggregate Bond Index (US$) returned -1.8%, while the EPRA/NAREIT Global Property REIT Index (US$) produced -5.7%. 

The spot price of Brent crude oil closed the month 7.6% higher at around US$78 per barrel, after two hurricanes in the Gulf of Mexico hampered production. Turning to commodities, metals were mostly negative with gold returning -4.6%, platinum -5.6%, copper -4.5%, palladium -25.0% (impacted by a sharp drop in demand as automobile production was slowed by the shortage of microchips) and nickel -6.8%. Aluminium was among the outliers, gaining 5.0% for the month. 


In the US, the Federal Reserve (the Fed) kept interest rates steady at 0-0.25% and bond-purchases unchanged at US$120 billion per month. However, sentiment dampened after the Fed signalled that a rise in interest rates may follow more quickly than expected, and that a moderation in the pace of asset purchases may be warranted, as the economy continues to make progress towards its employment and inflation goals. Meanwhile, US 10-year Treasury yields surged on the back of the Fed’s comments, placing downward pressure on equity markets, particularly on tech stocks.  

Turning to economic indicators, GDP growth for Q2 2021 was revised higher to 6.7% (q/q, annualised), marginally above the previous estimate of 6.6%. The Fed lowered its economic growth forecast for 2021 to 5.9% (down from 7%), however raised its growth projections for 2022 to 3.8% (from 3.3%) and 2023 to 2.5% (from 2.4%).  Unemployment in the US dropped to 5.2% in August, the lowest level since the start of the pandemic, as the labour market continued to show signs of recovery despite concerns over labour supply shortages and a rise in new Covid-19 infections. Meanwhile, annual inflation in the US eased to 5.3% in August from a 13-year high of 5.4% in June and July, largely in line with market expectations. 

Equities closed the month lower, with the S&P 500 returning -4.7%, the Dow Jones Industrial 30 -4.2%, and the technology-heavy Nasdaq Composite delivering -5.3% (all in US$). 


The South African Reserve Bank (SARB) kept the repo rate unchanged at a record low of 3.5% in September, citing that the overall risks to the medium-term growth outlook remained balanced, while the risks to the short-term inflation outlook were assessed to the upside. 

GDP for Q2 2021 grew by 1.2% q/q, beating market expectations of a 0.7% increase and outpacing the 1% expansion posted in the previous quarter. The SARB raised its GDP growth projection for 2021 to 5.3% (from 4.2%), while lowering its growth forecasts for 2022 to 1.7% (from 2.3%) and 1.8% in 2023 (from 2.4%). Meanwhile, inflation quickened to 4.9% in August from 4.6% in July, marginally above market expectations of 4.8% and ahead of the SARB’s 3-6% midpoint. According to the SARB’s latest modelling, headline CPI is expected to increase to 4.4% (from 4.3%) in 2021, while forecasts for 2022 and 2023 were left unchanged at 4.2% and 4.5% respectively. 

Looking at other economic indicators, South Africa’s current account surplus in Q2 2021 widened to R343 billion from R261 billion in the first quarter, marking the largest surplus since 1960. Meanwhile, retail sales declined by 11.2% m/m in July, largely on the back of a decline in retail activity following the civil unrest that broke out across parts of the country, particularly KwaZulu-Natal and Gauteng.  

The FTSE/JSE ALSI returned -3.1% in September. Among the largest detractors from performance was the Resources sector, which lost 9.3% largely on the back of sharp declines in metal prices. Financials gained 2.1%, while Industrials and Listed Property lost 0.8% and 0.2% respectively. The FTSE/JSE Capped SWIX All Share Index, which we use as the equity benchmark for most of our client mandates, returned -1.4%. SA bonds delivered -2.1% (as measured by the FTSE/JSE All Bond Index), SA inflation-linked bonds returned 0.3% and cash (as measured by the STeFI Composite) delivered 0.3%.  

Finally, the rand depreciated against the major currencies, losing 4.0% against the US dollar, 1.9% against the pound sterling and 2.1% against the euro. 


UK Prime Minister Boris Johnson deployed army drivers and the government’s reserve tanker fleet to help ease petrol shortages across the UK. Petrol stations ran dry as the region grappled with low supplies following a shortage of truck drivers and a temporary spike in consumer demand. 

In other news, the Bank of England left its benchmark interest rate at a record low of 0.1% and its bond-buying programme unchanged in September. The central bank signalled that the case for modest tightening had strengthened as inflation could persist above 4% well into 2022. Annual inflation in the UK increased to 3.2% in August, above market forecasts of 2.9% and marking the highest reading since March 2012. Meanwhile, GDP expanded 5.5% q/q in Q2 2021, above initial estimates of a 4.8% increase. Retail sales declined for a fourth consecutive month in August to -0.9%, marking the longest period of declines in 25 years, as the economy continued to battle a resurgence of Covid-19 cases and supply disruptions. 

Elsewhere, the European Central Bank (ECB) kept interest rates at record-low levels but said it would start tapering the pace of net asset purchases for the rest of the year due to improved economic conditions. The central bank reiterated, however, that it would adjust its purchases according to market conditions, with the view to prevent policy tightening too quickly. 

Eurozone GDP was revised higher to 2.2% q/q in Q2 2021 following two consecutive periods of contraction. The ECB revised the bloc’s economic growth forecast to 5% in 2021 (up from 4.6%), 4.6% in 2022 (down from 4.7%) and unchanged at 2.1% in 2023. The ECB also lifted its inflation forecasts for 2021 to 2.2% (from 1.9%), 1.7% in 2022 (from 1.5%) and 1.5% in 2023 (from 1.4%). In August, Eurozone inflation accelerated to 3.0%, its highest reading since November 2011 and well above the ECB’s 2.0% target. 

For the month, the UK’s FTSE 100 returned -2.2%, the German DAX -5.4% and France’s CAC 40 -4.0% (in US$). 


In China, concerns over the impact of power curbs, further regulatory crackdowns, and a liquidity crisis facing China's second largest private property developer, Evergrande, weighed on investor sentiment and sparked concerns of a growth slowdown. 

Company operations came under pressure after Chinese authorities introduced energy curbs to help reduce inflationary pressures on commodity markets and lower carbon emissions. The regulatory crackdown on certain industries, particular on the education and gaming industries, continued to place downward pressure on China’s largest stocks, with Alibaba down more than 30% year-to-date. Meanwhile, Evergrande’s inability to honour its bond repayments sparked concerns that the company’s liquidity crisis could spill over to the broader Chinese economy. 

Turning to economic indicators, inflation slowed to 0.8% in August, marginally off market forecasts of a 1% increase. Manufacturing and non-manufacturing PMI moved out of contraction territory in September, increasing to 50.0 (from 49.2) and 53.2 (from an 18-month low of 47.5). Services PMI, however, plunged to 46.7 in August from 54.9 in the prior month. 

Elsewhere, the Bank of Japan left its key short-term interest rate unchanged in September. The central bank reiterated that it expected short-and-long-term policy rates to remain at current levels or lower, and that it would not hesitate to take more easing measures if necessary. Japan’s GDP was revised higher for Q2 2021 to 0.5% q/q (previous 0.3%). Consumer prices declined by 0.4% y/y in August, marking the eleventh straight month of declines in consumer prices amid weakening consumption. Retails sales also declined, falling 3.2% y/y in August following 2.4% growth in the previous month.

Also, Japan’s health ministry said that it would lift its Covid-19 state of emergency (which covers 19 prefectures) in all regions at the end of September, following significant improvements to the average number of new infections. 

Japan’s Nikkei 225 delivered 3.9%, MSCI China -5.0%, and Hong Kong’s Hang Seng -4.8% (in US$).


Did you enjoy this article?

Sign up for our newsletter

Prudential is becoming M&G Investments
How will the change affect you?