Market Review - September 2021

October 1, 2021

By Jan Faure

Markets in the red as higher energy prices stoke inflation fears and as China throws another curve ball.

After a months-long rally, equity markets came under selling pressure in September as major indices retreated. Hong Kong led declines with a 5% drop m-o-m on the back of slumping technology and real estate stocks. In the US the S&P 500 index declined 4.8%, while Europe’s Euro Stoxx 50 index declined 3.5% m-o-m. The exception was Japanese stocks with the Nikkei 225 index rallying mid-month to its highest level since 1990 amid hopes for new political leadership. The Nikkei ended the month up 4.9%. The US dollar strengthened against most currencies as treasury yields ticked higher as inflation fears were stoked on surging energy prices.

Markets were severely spooked by fears that Evergrande Group, one of China's biggest companies and a major property developer, would default on its excessive debt (estimated at $300 billion) and potentially cause a crisis similar to the 2007-2008 global financial crisis. Initial fears were that a collapse of Evergrande could trigger widespread contagion, taking down property companies, banks and investors. Fears of a bursting property bubble in China have long been a concern for investors.

Markets eventually calmed as investors accepted that there was unlikely to be global contagion risk due to Evergrande’s loans being predominantly issued by Chinese banks that are implicitly backed by the Chinese government. It does however raise questions and concerns around the highly leveraged Chinese property sector and the health of the Chinese economy. The property sector makes up close to 30% of China’s economy.

In response, China urged its financial institutions to help local governments stabilise the rapidly cooling housing market and ease mortgages for homebuyers. Evergrande’s collapse would leave 1.5 million buyers waiting for finished homes. The Chinese government has long tried to enforce the principle that “housing is for living, not for speculation”. It wants to ensure a “healthy property market” but at the same time “safeguard the legitimate rights and interests of housing consumers”.

The primary cause of Evergrande’s difficulties has been the steadily tightening restrictions in the real estate market to rein in financial risks. It is yet another example of authorities trying to curb private sector practices deemed at odds with the greater good or “common prosperity”. Over the last few months we’ve seen a major regulatory crackdown that has impacted high growth internet companies including tech-giants Alibaba and Tencent.

One effect of the above has been emerging market currencies, bonds and equites coming under risk-off selling pressure. MSCI’s index of emerging markets shares fell 4.2% m-o-m in September.

Brent crude oil reached its highest level in three years (falling just short of $80) amid a tightening crude market. Crude oil has rallied on signs that global inventories are falling sharply, with demand picking up ahead of winter and OPEC+ very slowly allowing surplus production back into the market following Covid-induced supply cuts. US crude stockpiles are close to 3-year lows following hurricane disruptions that damaged oil infrastructure in the Gulf of Mexico.

Dow Jones Commodity Index Energy: 1 Year return +94%

Adding to tightness in crude markets has been the surge in natural gas prices which has made oil a relatively cheaper alternative for power generation. Its incredible to think that in April last year, oil prices fell below zero for the first time in history as lockdowns wiped out demand.

GLOBALINDICATORS: Local reporting currencies

Source: Bloomberg,, S&P Dow JonesIndices

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