The third quarter was a much more volatile quarter as we had expected in our half-year
forecast. Over the course of Q3 we saw risk assets initially move higher, with
many equity indices trading through their all-time highs in mid-summer. This was
then followed by a period of choppy trade and elevated volatility during September,
which resulted in the MSCI World index pulling back by roughly 6% from its record
high. In recent weeks, we have seen market participants express a number of
concerns, which we will look to address throughout this investment update:
- China’s largest property company, Evergrande Group’s missed debt payments,
and the possible contagion event that could take place throughout China’s
property sector and beyond. Notably, China’s property sector makes up 28% of
the nation’s gross domestic product.
- A looming unwind of the Federal Reserve’s easy money policies, which will come
in the form of a tapering of its asset purchases – due to begin before the end of
the year, and could lead to one or more rate hikes in 2022. This move will be
matched by other central banks, with the ECB for example planning to begin
their own QE tapering sometime during Q4.
- Ongoing political disagreements in the United States with regard to Biden’s
proposed $1.2 trillion infrastructure bill and $3.5 trillion national social safety
net and climate change bill. Importantly, and in addition to these issues,
concerns remain over the US’ debt ceiling – an issue that could see the United
States begin to default on its debt as soon as December, should an agreement
not be reached.
- Bond yields, most notably US Treasury yields, have risen relatively sharply in
recent weeks, which has caused investors to call into question equities and their
seemingly lofty valuations, especially high-growth names in the tech sector. This
increase in yields comes as investors begin to price in higher-for-longer inflation
on the back of soaring energy prices around the world, along with a Federal
Reserve tapering which is just around the corner and the possibility for rate
hikes sooner than was previously expected.
To read the full report download here or click through the document viewer below:_Seaspray FS Q3 Report 2021
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