Investment insights

Want to know the stories behind the numbers? We had Qantas Super investment manager Chris Grogan talk us through the latest market activity and what’s on the horizon:

As you’ll often hear us say, past performance is not a guarantee of future performance when it comes to investing, but there are some interesting trends or quirks to be spotted in history.

One of these is the so-called Santa Claus rally, which often sees an increase in the stock market from the last week of December through to early January.

Another trend investors have identified is the ‘September Effect’, which sees share markets often – but not always – experience a dip in September. According to Investopedia, since 1950, the month of September has seen an average decline in the Dow Jones Industrial Average (DJIA) of 0.8 percent, while the S&P 500 has averaged a 0.5 percent decline during September.

As Chris explained, there’s no official reason for this market quirk, but one theory posits that the effect is the result of investors switching up their portfolios after returning from the northern hemisphere summer.

Share markets did experience a slight dip this past September, with the benchmark ASX 200 index finishing the month down 2.6 percent. However, both our Australian and global equities portfolios saw positive returns for the quarter overall.

Months after the Ever Given container ship captured the world’s attention by blocking the Suez Canal for a week, attention has turned to the Chinese property development giant Evergrande.

The country’s second-largest development company, Evergrande has more than US$300 billion in debt. The company sparked concern after it told its investors in September 2021 that it would not be able to make two upcoming interest payments on time.

While Evergrande did eventually manage to make these payments, pausing work on developments and selling off assets in order to front up the cash, the situation highlighted the role of the company in, and its effect on, the wider Chinese economy.

Evergrande has further payments due in the coming months – and markets will be watching, paying particular attention to what actions the Chinese government will take, if any, to aid the company and safeguard the nation’s economy.

So, why does the rest of the world need to pay attention? Well, as Chris explained, events in the Chinese economy tend to flow on to the rest of the world. A reduction in real estate development, for example, will mean a reduction in China’s demand for iron ore, the majority of which is imported from Australia.

Our Investment team will be keeping a close eye on China and any flow-on effects in the months ahead.

Having spent most of the September quarter locked down, consumers in NSW and Victoria wasted no time in getting back to spending as they exited lockdown in October.

Analysis of credit and debit card spending from the Commonwealth Bank, which covers approximately 40 percent of consumer payments transactions in Australia, found NSW spending was 23.3 per cent higher in the week ending 29 October 2021 than the corresponding week in 2019, while spending in Victoria was up 10 percent compared to the same week in 2019.

According to the data, while in-person spending has increased, there have not been corresponding declines in spending online or on goods.

This activity is reflected in forecasts from the Reserve Bank of Australia (RBA), with Governor Philip Lowe stating the central bank expects the economy will bounce back relatively quickly: growth in Australia’s gross domestic product (GDP) of 3 percent is expected over 2021, and 5 ½ percent in 2022.

Speaking after the RBA Board’s November 2021 meeting, Lowe said, “At the outset of the pandemic, economic policy, including monetary policy, set out to build a bridge to the other side. That other side is now clearly in sight. As restrictions are eased, spending is expected to pick up relatively quickly as people seek a return to a more normal way of life.”

“The rapid increase in vaccination rates has been critical in getting us to this point. More broadly, the support provided by both monetary and fiscal policy means that the Australian economy is well placed to resume its expansion.”

Despite this outlook, the RBA held steady again on the cash rate, keeping it on hold at its record low of 0.1 percent.

However, the central bank announced it would be discontinuing its yield target, or its yield curve control policy. This had seen the RBA buy billions in Australian government three year bonds, which mature in April 2024, to drive down their yield (or return) to 0.1 percent in line with the cash rate. This in turn allowed banks to offer borrowers cheaper loans.

Lowe explained this decision was made due to improvement in the economy, and earlier-than-expected progress towards the RBA’s inflation target of 2-3 percent.