Markets Update – October 2021
September: The MSCI world in Euro terms finished the month down approximately 2% which leaves the Year-to-date return near 18%. There was notable sector dispersion with the Energy sector the standout leader returning 9.2% and the Materials (-7.6%) and Utilities (-7.55%) sector notable laggards.
Evergrande got lots of media attention during the month as it became clear they would not pay interest due on bank loans. Concerns over Evergrande drove some relative weakness in China property exposed sectors such as metals and mining. While more pain is possible in the near-term, given the too big to fail nature of Evergrande and the clearly weakening Chinese economy it is reasonable to expect a material step up in policy support in the coming months, the government will not want systemic risks to be in focus in the lead up to the 2022 CCP National Congress.
Developed markets saw a sharp pullback on the Evergrande news but as details became clearer that a managed unwind of the firm’s assets, combined with a completion of their existing projects under some form of state supervision would be the most likely long-term resolution, western markets’ attention gradually moved on.