27th September 2021

Good morning,

The macro focus shifted to China for much of last week, as a number of interesting stories broke from the world’s second largest economy. Evergrande garnered many of the headlines, but initial fears of contagion appear to have been overblown. It is worth noting that Evergrande’s problems have been slowly building, and the increased risk has been seen in credit spreads. In short – it was always a ‘risky’ investment. It did give the Chinese authorities a chance to flex their muscles once again with another reminder (similar to that seen earlier this year with tech) to the country’s business class of who is really in charge. With Chinese equities down significantly this year, this easing off the accelerator from China has not gone unnoticed.

Along a similar vein, the price of Bitcoin plunged on Friday as Chinese regulators reiterated their stance towards cryptocurrencies and pointing out again that they do not have ‘legal status’ in the country. The debate over crypto will continue to rage, but until governments come on board (no – Venezuela doesn’t count) the sector will simply be a speculative investment, as opposed to a functioning currency.

Weekly Investment News
Equities had a poor start to last week, with the S&P 500 seeing its worst day in a number of months last Monday. However, much of the losses were recouped throughout the rest of the week as major markets finished on more solid ground. The possible default of Chinese property developer, ‘Evergrande’ was the source of much consternation as investors feared any collapse could lead to a global sell off. However, Chinese authorities had stepped in by mid-week which saw a capital injection into the banking system and a restructuring plan announced for Evergrande.

The U.S. Federal Reserve met on Wednesday with no change in the headline interest rate, as expected. However, Fed Chair Powell did give further hints in his press conference in relation to plans for tapering of bond purchases and a more ‘hawkish’ tone is beginning to emanate from the individuals on the committee. Bond yields (which move inversely to prices) moved higher on both sides of the Atlantic. There was little in the way of U.S. economic data last week, but housing starts rose 3.9% whilst building permits climbed 6.0% as new home sales were up 1.5% in August. The property market appears to be still navigating a number of supply side concerns.

The Bank of England also kept its headline rate unchanged at 0.10%, although two board members made the case for higher rates as Governor Andrew Bailey stated he sees inflation at elevated levels over the next year. The German election took place over the weekend, with the initial results too close to call. A coalition between the SPD and the CDU/CSU bloc looks likely as a strong showing from the Greens has also brought them into the equation. Market reaction has been muted with the final makeup of the new government unlikely to deviate massively from previous policy.

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