Chief Investment Office 1 Oct 2021


Volatility continued to roil financial markets, with US equities notching their biggest monthly selloff since March 2020.

Stocks pushed lower on Thursday (30 September) even after confirmation that the House passed a nine-week spending bill to avert a US government shutdown. For traders, that was just one within a litany of risks. Investors are also bracing for the Federal Reserve to wind down its stimulus amid mounting fears about slowing economic growth, elevated inflation, supply chain bottlenecks, a global energy crunch, and regulatory risks emanating from China.


Political wrangling in Washington is threatening to push the US into default and force President Joe Biden to scale back his spending agenda. Democratic Senator Joe Manchin wants the social spending package cut by more than half to USD1.5t. House Speaker Nancy Pelosi was pressing ahead with a vote on a bipartisan infrastructure bill, even though progressive Democrats said they have the numbers to stall it until the Senate agrees on a more expansive tax and spending package.

The S&P 500 Index closed at the lowest level since July, extending its September losses to almost 5%. The benchmark closed 1.19% lower at 4,307.54 on Thursday. Economically sensitive companies like industrials and financials were among the worst performers. The slide almost wiped out the index’s gains for the quarter.

A near-record technical streak for the S&P 500 has some bulls worried that a sharp pullback is overdue. – Bloomberg News.

The Dow Jones Industrial Average fell 1.59% to 33,843.92 and the Nasdaq Composite Index dipped 0.44% to 14,448.58.



European equities posted their worst monthly decline since October as concern over rising bond yields countered optimism about the economic recovery.

The Stoxx Europe 600 Index closed little changed at 454.81 on Thursday (30 September). This brings the monthly loss to 3.4%. Travel, utilities, and retail led the declines on Thursday, while miners surged as iron ore climbed. Financials and energy also outperformed.

European stocks have been whipsawed this week (ending 1 October) by concerns over rising government bond yields, which put pressure on more expensive sectors, such as technology. The Stoxx 600 is down more than 4% from its August record high, with other worries including supply chain disruptions, surging power prices, China risks, and the delta variant of Covid.

This month’s best-performing sectors are energy and banks, more cyclical sectors that win from higher bond yields. Rates-sensitive sectors such as real estate and utilities were the worst performers.


Macroeconomic statistics, meanwhile, are painting a mixed picture, with UK growth stronger than previously estimated but labour data from Germany suggesting fading momentum in the country’s reopening boom.

Among individual shares, Eutelsat Communications SA soared 15%, the most on record, after a report that billionaire Patrick Drahi made a bid valuing the French satellite operator at about EUR2.8b (USD3.2b). Eutelsat confirmed it has received an offer but has decided not to engage in discussions.

DNA-sequencing company Oxford Nanopore Technologies rose as much as 47% as it started trading in London, in one of the UK’s best-ever market debuts.

Boohoo Group sank as much as 17% after lowering its forecast for sales growth and profitability as the online fast-fashion retailer was hit by shipping costs and supply chain disruption.  – Bloomberg News.



Japan’s financial regulator is keeping a closer watch on the nation’s banks and insurers as their drawn-out hunt for yield pushes them into riskier non-traditional assets.

After years of ultra-low interest rates and record levels of deposits, it is “inevitable” that firms are taking bigger risks, according to Toshinori Yashiki, who is in charge of assessing risk at banks and insurers at the Financial Services Agency (FSA).

“The situation is getting worse,” Yashiki, 56, said in an interview. “There have been moves to pursue yields,” and financial firms “have to take risks they haven’t taken before.”

Regulatory officials in Japan are treading a fine line between supporting an environment where financial firms seek out investments that offer higher returns, while guarding against excessive risk taking. Some lenders are turning to riskier offerings to make a return on deposits that ballooned during the pandemic.


The FSA assessed potential lapses in risk management at three Japanese financial firms earlier this year after they were hit by the implosion of New York-based family office Archegos Capital Management.

Instead of clamping down on the risks institutions are taking, the regulator is asking more questions about how they are making these investments such as: “Are you properly evaluating risks and returns? Is the size of risk appropriate for your capital or profit?” he said.

Yashiki, who started his career at the Bank of Japan, said the hunt for yield is not limited to securities, and extends to real estate non-recourse loans and leveraged buyout loans. “Rather than finding risks of specific products, we would first like to focus on whether the proper process and systems are in place to evaluate risks,” he said. 


Japanese banks and insurers now hold fewer government bonds in their portfolio, while the share of foreign securities and investment trusts has been rising. Securitised products and privately placed bonds are also on the increase, although not significantly, Yashiki said.

Japan’s 107 banks held about JPY238t (USD2.1t) of securities in the year ending March, up 20% from a year earlier, according to credit-research company Tokyo Shoko Research. The level of deposits and loans rose 10% and 3.3%, respectively, over the same period. – Bloomberg News.

The Nikkei 225 Index opened 0.27% higher at 29,372.00 on Friday (1 October), after tumbling 0.31% to 29,452.66 the previous session.



Hong Kong retail sales surged in August for the biggest increase in four months after the government gave out electronic spending vouchers and spurred local consumption.

The value of retail sales jumped 11.9% in August to HKD28.6b (USD3.67b) for the biggest gain since April, a government report said. The result is well ahead of the median economists’ forecast for a 6.4% advance. Sales by volume also jumped 10.6%, above the median 6.7% estimate.

The Hong Kong government began handing out the first instalments of the vouchers on 1 August, and will give a total of HKD5,000 worth of spending vouchers to eligible residents in a bid to support local businesses. Restrictive social distancing measures and border restrictions have devastated Hong Kong’s key tourism, consumption, and services industries since the onset of the pandemic.


Alongside the handouts, “the stable local epidemic and improved labour market conditions also contributed,” the government report said. The programme, which will make further distributions over the next few months, will “continue to bode well for local consumption sentiment in the rest of the year”.

Hong Kong has slowly emerged from a two-year recession this year amid a rebound in trade and gradual easing of virus control measures. The government raised its 2021 growth forecast to a range of 5.5% to 6.5% in August, with the voucher programme seen giving a boost to the economy. – Bloomberg News.

On Thursday (30 September), the Hang Seng Index fell 0.36% to 24,575.64 while the Shanghai Composite Index climbed 0.90% to 3,568.17.



The unrelenting surge in Australia’s home prices – rising by hundreds of dollars a day in Sydney and Melbourne – is fuelling momentum for macroprudential measures to contain credit growth and keep a lid on swelling financial risks.

Driving the gains are record low official interest rates, which Reserve Bank of Australia (RBA) Governor Philip Lowe is expected to hold at 0.1% at the 5 October meeting. While Lowe cut weekly bond purchases to AUD4b (USD2.9b) last month, the RBA consistently has said it does not expect to raise interest rates until 2024 at the earliest.

That leaves tighter lending rules as the only way to rein in the property market, which is increasingly unaffordable for regular workers in major cities. Citing concerns over financial stability, the International Monetary Fund called last week (ended 24 September) for lending curbs to tame the red-hot prices.


The central bank has said it is constantly assessing tools, but has held back until now as it focused on supporting the economy with the coronavirus leaving much of the population-heavy east coast in lockdown. The government, which must go to the polls by May, also seemingly wants action on house prices.

Housing is roaring in response to ultra-low rates, a phenomenon seen across the developed world as central banks eased policy to support economies during the pandemic. Prices in Australia have risen at more than 10 times the pace of wages, raising a major barrier to entry for first home buyers.


The rapid house price gains in Sydney and Melbourne come despite protracted lockdowns, and as growing household debt raises financial stability issues. The RBA has ruled out tightening policy to cool asset prices – unlike South Korea, and as New Zealand’s central bank appears set to do at its 6 October meeting – focusing instead on pushing the economy to full employment.

The RBA does not control macroprudential tools directly. Rather, they fall under the remit of the banking regulator, which is in regular discussions with the central bank. The Australian Prudential Regulation Authority plans to publish an information paper on its framework for implementing macroprudential policy in coming weeks. – Bloomberg News.

Australia’s S&P/ASX 200 Index slipped 0.35% to 7,306.70 at the open on Friday (1 October). It jumped 1.88% to 7,332.20 on Thursday.

South Korea’s Kospi Index opened 0.41% lower at 3,056.15 on Friday after adding 0.28% to 3,068.82 the previous session.

The Taiwan Stock Exchange Weighted Index gained 0.47% to 16,934.77 on Thursday.



Oil closed the month almost 10% higher after a tumultuous session during which China was said to order its top energy companies to secure energy supplies at all costs amid shortages, prompting the White House to reiterate its own concerns over rising prices.

Futures in New York rose 0.3% Thursday (30 October), wiping out earlier losses of as much as 2.3%. Prices surged after China was said to order its top state-owned energy companies to secure supplies at all costs. The rally cooled somewhat after Reuters reported the Organization of Petroleum Exporting Countries+ (OPEC+) is considering boosting production even more than previously announced at its meeting next week (ending 8 October).

The rising price of oil “is of concern for the US”, said White House press secretary Jennifer Psaki. The US has been in touch with OPEC about oil prices, she said at a press briefing. Heading into next week’s meeting between OPEC and its partners, there is increased speculation that the organisation will consider raising production more than the previously announced hike of 400,000 barrels a day.


The biggest monthly increase since June was spurred by ongoing supply disruptions in the US Gulf of Mexico and an ongoing energy crunch that many expect will prompt a shift to burning oil for power generation as coal and natural gas prices skyrocket. Some options traders are even betting prices could reach USD200.00.

Crude supplies probably will be 1.5m barrels a day shy of demand during the next six months, according to some market analysts. That deficit could widen should soaring natural gas prices spur a shift to petroleum-derived fuels.

Global oil supplies are expected to fall short of demand by 1.2m barrels a day in October, and by 900,000 the following month, according to an OPEC secretariat document being reviewed by the group’s Joint Technical Committee.

West Texas Intermediate crude for November delivery climbed 0.27% to USD75.03 while Brent for November settlement slipped 0.15% to USD78.52 a barrel. – Bloomberg News.



China’s already fragile economic recovery from the pandemic is facing a new challenge – a relentless rally in the US dollar.

The US currency’s surge is helping the yuan record its largest gain in eight months on a trade-weighted basis in September, a Bloomberg replica of the official CFETS RMB Index shows. The gauge that tracks China’s currency vs 24 peers indicates the others weakened more vs the dollar than the tightly managed yuan.

The yuan’s advance vs peers risks hurting the competitiveness of Chinese goods in global markets, according to some analysts, although demand for exports remains resilient for now. It adds to headwinds for the world’s second largest economy already slowing due to a resurgence in Covid cases, a power crisis, and regulatory curbs.


The Bloomberg Dollar Spot Index has extended its rally this week (ending 1 October) to the highest since November, as yields on US Treasuries punched through key levels across the curve after the Federal Reserve said it may start tapering bond purchases soon. Most Asian currencies tumbled as a result – the Thai baht was the worst monthly performer with a loss of 4.7% followed by the Philippine peso which slid 2.4%.

The yuan, however, has barely moved vs the greenback in both onshore and offshore markets, on expectations that the People’s Bank of China (PBOC) would support the currency in case of a selloff. The need for Beijing to keep the market stable is even more pressing now amid lingering concern over China Evergrande Group’s debt.


The Bloomberg syndicate of the CFETS basket rose in all but six sessions this month to 99.97 on Thursday (30 September) – the highest level since early 2016. The official index was created by the PBOC in late 2015 after the central bank devalued the currency in a shock move.

The yuan’s resilience vs the dollar may be sustained, keeping the currency elevated against trading partners, said an economist.

Some analysts recommend betting against the Chinese currency amid the nation’s narrowing yield spread versus Treasuries and potential central bank policy easing if the Evergrande crisis deepens. – Bloomberg News.

On Thursday, the US Dollar Index fell 0.11% to 94.230, the euro fell 0.16% to USD1.1580, the pound gained 0.35% to USD1.3474, and the yen strengthened 0.60% to 111.29 per dollar.