As we delve into the market update for September 2023, it's evident that the world of international equities faced its fair share of challenges. Both unhedged and hedged shares experienced significant declines, influenced by factors such as rising oil prices and bond yields. However, amid the turmoil, a glimmer of hope shone through the energy sector, showcasing resilience amidst the chaos. Join us as we dissect the month's performance in global and Australian equities, fixed income, the Australian Dollar, and commodities, offering insights into the current financial landscape.
International Equities performed poorly in September as both unhedged and hedged shares fell by 4.02% and 3.75%, respectively. This result is not unexpected as there was downward pressure on equities from multiple angles, including rising oil prices and bond yields.
The only sector to end in the green this past month was energy at 0.65%, spurred on by the OPEC production cuts and the resulting increases in oil prices. The next best was communication services and health care, which still fell by 2.63% and 3.55%, respectively.
The worst-performing sector was the technology sector, which fell by 7.05%. The announcement by the Fed that they expect to maintain interest rates at a high level well into 2024 triggered a rise in bond yields and dampened interest in growth stocks that the tech sector largely consists of. Close behind tech was real estate, which fell by 6.8%, which was also partly due to the expectation of rates remaining higher for longer.
Australian shares also performed poorly in September, as they fell by 2.82%, with every sector retreating over the month. This most likely stems from the release of the RBA minutes stating that further tightening in policy may be required should inflation prove more persistent than expected.
The best-performing sector was once again energy. The cushioning provided by rising oil prices led to a slight retraction of 0.3%. This was followed by financials at -1.5%, materials at -1.9%, and industrials at -2%. The three worst-performing sectors were healthcare at -4.7%, technology at -6%, and real estate at -7.2%. Tech and real estate are falling due to similar reasons as their international counterparts.
With both international and domestic equities falling significantly, this month continues the historical trend of September being a weak month for stock markets.
Domestic and International Fixed Income
In September, Australian bond prices fell by 1.53%. This retraction was due to continued high inflation and a tight labour market that led the RBA to consider either increasing or maintaining a high cash rate until this sticky inflation comes under control. This led to an increase in bond yields and a reduction in bond prices as investors expect high rates further into next year.
International bond prices fell by 1.84% as a similar situation played out globally and, more specifically, in the US. With expanding economic activity, strong job gains, low unemployment, and elevated inflation, the Fed maintained rates at 5.25-5.5% while also keeping the door open for potential rate increases in the future. This had the same effect as in Australia, with bond yields increasing and their prices decreasing as a result.
The Australian Dollar (AUD) rose by just 0.34% over the month. The AUD depreciated against the Euro and United States Dollar while appreciating against the Great British Pound and Japanese Yen. The growth was hampered by weak Chinese data, a deterioration in global market sentiment, and a rise in Fed funds rate expectations.
Commodities – Gold and Oil
Gold fell by 3.73% in September, steepening its decline from the previous month. In August, there were mixed expectations for future interest rates, but this month, the Federal Reserve announced that it is not ruling out further interest rate increases. This increased the attractiveness of bonds and lowered the attractiveness of gold, lowering its price.
The only asset class to grow in September besides cash, oil continued its rise this month with an increase of 9.91%. With the OPEC production cuts not scheduled to end before 2024, we can expect these oil price increases to continue for the rest of the year.
In conclusion, September 2023 proved to be a month of volatility and adjustments across various financial sectors. As we navigate these uncertain times, it's crucial to have a comprehensive understanding of the market dynamics. If you have questions or seek guidance on your investment strategy in light of these developments, don't hesitate to reach out to us. Our team of experts is here to assist you in making informed decisions. Contact us today to secure your financial future in a rapidly changing world.
For insights into August's market performance, you can revisit our previous update, August 2023 Market Update.
The information provided in this communication has been issued by Centrepoint Alliance Ltd and Ventura Investment Management Limited (AFSL 253045).
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