Chief Investment Office 4 Oct 2021


Stocks climbed as prospects for a pickup in growth outweighed concern over inflation pressures at a time when the Federal Reserve is getting ready to wind down its pandemic era stimulus.

Promising results for Merck & Co’s experimental Covid-19 pill triggered a rally in companies that stand to benefit from an economic reopening. Commodity and financial shares were among the biggest gainers in the S&P 500 Index, while a gauge of small caps jumped 1.7%. Airlines, cruise operators, hotels, and amusement parks soared.

A measure of American manufacturing expanded at the fastest pace in four months, bolstered by robust demand for factory goods and burgeoning inventory. US consumer sentiment edged higher in late September, though remained near a pandemic low. The personal consumption expenditures index – which the Fed uses for its inflation target – had the biggest annual increase since 1991.


Former US Treasury Secretary Lawrence Summers said investors may be tuning into the risk of an overheating US economy and the chance that pushes the central bank into a faster withdrawal of monetary policy stimulus. Despite Friday’s (1 October) rally in stocks, the S&P 500 still suffered its biggest weekly slide since February.

Favouring stocks in some US industries and avoiding others mattered less in the third quarter than it has in decades. A comparison of the S&P 500’s main groups shows as much.

The biggest gain was 2.3%, posted by financial stocks, and the largest drop was 4.6% for industrial shares. The gap of 6.9 %pts between first and last place was the smallest in any quarter since the sector indices were first calculated in 1989, according to data compiled by Bloomberg. The prior record was 8.1 points, set in 1989’s third quarter. – Bloomberg News.

The S&P 500 gained 1.15% to 4,357.04 on Friday, the Dow Jones Industrial Average rose 1.43% to 34,326.46, and the Nasdaq Composite Index upped 0.82% to 14,566.70.



European stocks had their worst week since late February as investor concerns over a continent-wide energy crunch and a deteriorating profit outlook outweighed positive news on the pandemic front.

The Stoxx 600 Europe Index fell 0.42% to 452.90 on Friday (1 October), bringing the week’s drop to 2.2%. The gauge pared losses of as much as 1.6% earlier in the day after Merck & Co said its Covid-19 antiviral pill reduced the risk of hospitalisation or death by 50% in an interim analysis of a late-stage trial.

Miners and technology shares were the worst performers. Travel and real estate led the rebound, while utilities also outperformed, largely thanks to a 5.9% jump in shares of Electricite de France. Ryanair Holdings jumped by 5% and tourism services provider TUI soared by 5.5% on hopes of travel resuming as the pandemic recedes and as G-7 countries agreed to work together to accelerate a pickup in international travel.


After six consecutive quarters of gains – the longest winning streak since 2006 – momentum has faded for the main European equities benchmark, which is 4.8% below its August record high. The outlook has been clouded by surging energy prices, fears of a Chinese slowdown, rising bond yields, a looming wind-down of central bank stimulus, and persistent supply bottlenecks.

The European Union’s statistical agency said in a preliminary estimate on Friday that inflation in the Euro Area surged to a 13-year high last month. Meanwhile, a gauge measuring business activity in manufacturing fell in September by the biggest margin since April 2020, when the pandemic was starting, IHS Markit said Friday. – Bloomberg News.



Japanese shares soared one month ago as outgoing Prime Minister Yoshihide Suga announced he would be stepping down, spurring hopes for a new administration. As his successor prepares to take power, the aspirations and stock gains alike are drying up. 

In the last day of trading before Suga’s replacement Fumio Kishida is formally sworn in on Monday (4 October), the Topix Index and the Nikkei 225 both fell below their closing levels on 3 September, the day Suga shocked the market.

While there are many external factors for the drop, including US yields, an energy crunch, and the Evergrande debt crisis, market disillusionment with the uninspiring choice of Kishida is compounded by reports of his selection of Cabinet members. They indicate appointments are being made to keep internal factions happy, rather than please the public.


“These appointments don’t feel very fresh,” said a senior market analyst. “Stocks rose on anticipation for the leadership vote, but don’t look like they’ll be too excited going forward.” He cited investor concern for redistribution of the fruits of economic growth.

Nonetheless, Japanese equities still outperformed peers during that time. While the Topix has lost 1.5% since the day Suga resigned, that is a better return than the MSCI ACWI Index of global shares, which has lost 5.3%. Many analysts expect that the forthcoming general election will help to drive equities back up, along with the economic reopening that begins today with the end of a state of emergency. – Bloomberg News.

The Nikkei 225 Index opened 0.42% higher at 28,892.50 on Monday, after tumbling 2.31% to 28,771.07 the previous session.



Asia has had its best third quarter on record for initial public offerings (IPOs), even with Hong Kong turning quiet as many firms put listing plans in the regional powerhouse on hold amid China’s sweeping regulatory clampdown.

Thanks to blockbuster deals in markets like South Korea and India, first-time share sales in the region raised USD56b in the three months through 30 September, the most ever for such a period, data compiled by Bloomberg show.

“Activity will continue – 2021 remains an extraordinary year for equity capital markets volume,” said a co-head of Asia ex-Japan equity capital markets. “Global investors still want access to Asian growth.”

Asia’s record third quarter came despite the slowdown in Hong Kong, one of the world’s busiest listing venues. As Beijing broadened its efforts to rein in corporates and align business models with President Xi Jinping’s “common prosperity” campaign, about USD1t was wiped off the value of Chinese stocks globally in July and Hong Kong’s stock benchmark sank into a bear market in August.


That saw listing volumes in the financial hub dip to USD6b in the third quarter, trailing South Korea for the first time in four years. It was also the lowest quarterly IPO haul for Hong Kong since the start of 2020, when the pandemic was taking hold and equity capital markets ground to a halt.

Share performance also suffered. Firms that listed in Hong Kong in the third quarter and raised at least USD100m saw their stocks climb just 2.8% from their offer prices on average, according to data compiled by Bloomberg. That is compared with 20% in South Korea and 25% in India, both of which saw big increases in volumes compared with the first two quarters.

South Korea and India: IPOs by the likes of game developer Krafton and online-only bank KakaoBank pushed third quarter volumes to USD10.4b in South Korea, around four times what was fetched in each of the previous two quarters.


Similarly, in India, food-delivery startup Zomato Ltd raised USD1.3b in July. Many more listings are lined up for the final quarter, starting with digital payments company Paytm, which has filed to raise as much as INR166b (USD2.2b) in what would be the nation’s biggest IPO ever.

China headwinds: While Shanghai pulled off the biggest third quarter deal in Asia with China Telecom Corporation’s bumper offer, few bankers expect a heavy pipeline of Chinese listing candidates to come back soon. That is owing to the continued uncertainty on the regulatory front and as issuers await new rules on overseas IPOs.

Chinese firms that had initially eyed Hong Kong or US listings may now opt to raise money privately instead as they wait for the clouds to clear.


Even with the slowdown in Hong Kong, first-time share sales in Asia have raised USD140.5b so far in 2021, more than the same period in any other year, Bloomberg-compiled data show.

And while IPOs by Chinese issuers may slow down over the next three months, listed companies are still raising funds. London-based insurer Prudential fetched USD2.4b in a Hong Kong share sale in September in one of the city’s biggest follow-on offerings of the year.

The complexion of transactions in Asia will differ from 2020, and a more thoughtful approach to price, size, and structure may be needed, but deals will keep being done, said a head of equity capital markets. – Bloomberg News.

Australia’s S&P/ASX 200 Index gained 1.21% to 7,272.40 on Monday. It lost 2.00% to 3,019.18 on Friday.

South Korea’s Kospi Index tumbled 1.62% to 3,019.18 on Friday. The country’s markets are closed Monday for National Day.

The Taiwan Stock Exchange Weighted Index erased 2.15% to 16,570.89 on Friday.



On Friday (1 October), Mainland China and Hong Kong markets were closed for public holidays.


Oil rose in tandem with equity markets while traders turned their attention to an upcoming Organization of the Petroleum Exporting Countries+ (OPEC+) meeting that may yield supply increases.

Futures in New York rose 1.1% on Friday (1 October). US benchmark crude posted a sixth straight weekly gain, the longest streak of weekly advances since early July. Buzz continued around whether on Monday OPEC will decide to increase output after reviving its production by 360,000 barrels a day in September, according to a Bloomberg Survey.

Last month’s output is lower than the threshold that markets are expecting OPEC to increase their production to, and a lot of countries in OPEC do not have the capability to increase production by very much, a director at a securities firm. But that has not stopped markets from pricing in the possibility that OPEC will go “above and beyond” in output.


Investors are also focusing on demand after China ordered its state-owned companies to secure energy supplies for winter at all costs as the country struggles with a deepening power crisis. The order from Beijing is the latest sign that rising energy prices are becoming a political issue, after the White House Thursday said crude’s rally was a concern.

West Texas Intermediate crude for November delivery rose 1.13% to settle at USD75.88 a barrel; futures rose 2.6% last week (ended 1 October). Brent for December settlement rose 0.97% to settle at USD79.28 a barrel.

A financial firm also warned that worsening natural gas crises in Asia and Europe will spur so many power generators to switch to petroleum-based fuels that Brent crude will reach USD84.00 a barrel by the end of the year.


It is likely to add more upward pressure to already elevated coal and liquefied natural gas prices, as well as oil products including fuel oil, diesel, and propane, which can be used for electricity generation or to power small generators. That is bolstering the scrutiny on OPEC+’s next move when it meets Monday.

Meanwhile, the OPEC+ alliance, led by Saudi Arabia and Russia, will meet this week to review the next monthly increase. Part of the problem is that some OPEC members, like Angola and Nigeria, are struggling to revive production as they wrestle with operational disruptions and investment constraints. – Bloomberg News.



Venezuela is launching a new version of the bolivar in the latest attempt to salvage a currency so beaten down by years of hyperinflation that residents have adopted the US dollar.

The so-called digital bolivar, which was introduced Friday (1 October), effectively removes six zeroes from the “sovereign bolivar”, which started circulating just three years ago.

New banknotes and coins will be put into use. Bank accounts will be adjusted to reflect the redenomination. And debit and credit card purchases will become easier: there were so many digits involved in some transactions that merchants were forced to split the transaction into multiple card swipes.

It is another manoeuvre aimed at propping up the national currency, even though President Nicolas Maduro’s government is permitting the use of the US dollar as a way to cope with runaway inflation and shortages. The government has implemented two other currency changes since 2008, dropping eight zeroes. Hyperinflation, among the highest in the world, has slowed to 2,146% per year from more than 300,000% in 2019, according to Bloomberg’s Cafe Con Leche index.


Under Friday’s change, the largest former banknote, for 1 million bolivars – worth about USD0.23 –will be replaced by a 1-bolivar coin. One dollar will fetch around 4.2 bolivars instead of 4.2 million bolivars at the official exchange rate.

On Thursday, demand for dollars rose as people feared a prolonged suspension of banking services as the redenomination is rolled out, said an economist at a Caracas-based financial firm.

The central bank said Friday it would intervene on the FX market, selling USD50m through the banks’ exchange mechanisms, according to a notice sent to financial institutions. The amount, larger than normal interventions, comes after a spike in the parallel exchange rate over the past two days.

Two-thirds of retail transactions involve the US dollar, according to the financial firm. Yet, many Venezuelans need bolivars for everyday transactions, like bus fares and to buy gas subsidised by the government. While the government is attempting to boost the use of digital payments, many regions are beset by regular electrical blackouts that affect communications.


Venezuelans have faced disastrous government policies and pressure from US sanctions that have put the country on the brink of its eighth-straight year of economic contraction. More than 5m people have fled the country, once one of Latin America’s wealthiest.

An estimated 76.6% of Venezuelans are living in extreme poverty, up from 67.7% last year, according to a university survey on living conditions known as Encovi. – Bloomberg News.

On Friday, the US Dollar Index fell 0.21% to 94.035, the euro rose 0.14% to USD1.1596, the pound gained 0.53% to USD1.3546, and the yen strengthened 0.22% to 111.05 per dollar.