Performance, October 2021

15.11.2021

As described in our most recent report, the correction in the equity market in September was the first (and only) correction above 5% in 2021 - so far. “Normally” we see more than three such corrections a year and about one correction of 10% or more. Hence the first ten months of 2021 were really both a strong period for equities and a period with few corrections and therefore lower risk than is normally the case. As shown in the Chart below, equities increased quite decently again in October, and we are back at the record levels at the beginning of September.

Chart 1: Global equities in 2021

 
(Source: Macrobond, 2021)

Decent growth, rising employment and rising inflation prompted several central banks to signal tightening of the monetary policy. Most important were the announcements from the Fed which as expected stated at its interest rate meeting in November that the bond purchases will be tapered over the coming months.

Seen in isolation, fewer stimuli from the monetary policy will not bode well for the equity market. However, so far the market has taken these announcements in stride, the primary reason being that even though growth has fallen slightly, the rate is still at a high level, and corporate earnings are still at solid levels (decent Q3 financial statements).  Even though we are currently witnessing an increasing reproduction rate, particularly in Europe, it does not seem that the development of the Corona pandemic is of concern to the equity market, and we acknowledge that new massive lockdown measures are not currently a particularly probable scenario.

Asset class performance
As shown by chart 1, October turned out to be a fantastic month for global equities. Emerging equity markets can still not quite match the developed markets, but after all they ended the month in positive territory. The interest-bearing parts of the portfolio are still facing some challenges in the form of slightly increasing interest rates and in most markets bonds yield moderately negative returns. Fewer stimuli from the central banks will not bode well for equity investors. We are, however, still of the opinion that the balance will tilt in favour of the equity market as the alternatives will still only offer very modest returns.