Political risk continued to influence events in the Far East, with the implications of China’s ‘’common prosperity’’ policy continuing to be mulled over by investors. Balancing the needs of communist social policies with the demands of Western capital is an issue that will take time to work through and although regional stock markets recovered some of the ground lost in July, the longer run investment implications remain unclear. Late in the month, prospects of a snap election in Japan sparked a strong rally in Japanese stocks, which had been quiet of late.

“Balancing the needs of communist social policies with the demands of Western capital is an issue that will take time to work through and although regional stock markets recovered some of the ground lost in July, the longer run investment implications remain unclear.”

 

Towards the end of August additional guidance on future Federal Reserve policy was delivered as part of the annual Jackson Hole symposium. Once again, the Fed neatly threaded the needle of market expectations by communicating that their bond-buying programme would indeed begin to wind down before year-end, but that this action is not linked to any change in interest rates. The net effect was taken by investors as confirmation of the very gentle withdrawal of the emergency support provided in such abundance since the Covid outbreak last year. A similar message is also coming from the other major central banks and the combined effect made August, and the summer as a whole, a strong period for risk assets and portfolios.

“Once again, the Fed neatly threaded the needle of market expectations by communicating that their bond-buying programme would indeed begin to wind down before year-end, but that this action is not linked to any change in interest rates.”

 

Interestingly, throughout the month, real time data on investor positioning showed a clear global trend of exposures being reigned in and evened out. Profit taking across all asset classes was in evidence and given decent performance year to date, it is perhaps unsurprising that there is less of an appetite to maintain ‘big bets’ as we head into year end. The potential for inflation data to unsettle bond markets just as the Fed is beginning to withdraw its support is also very real, and valuations remain generally high. Although the outlook remains favourable it is also likely to stay choppy, with the pace of returns slowing. Some reduction in risk appetite therefore seems sensible.

Portfolio Performance

Portfolios overall had a good month, driven by exposures to riskier assets, in particular equities in the Japan/Asia Pacific region, for reasons described above. The range of returns was +0.8% to +2.7%, with the higher risk mandate doing best. Outside of gold, few assets made a meaningful negative contribution.

 

On behalf of the Saltus Investment Committee, September 2021

Saltus Asset Management Ltd is authorised and regulated by the financial conduct authority. Information is correct to the best of our understanding as at the date of publication. Nothing within this content is intended as, or can be relied upon, as financial advice. Capital is at risk. You may get back less than you invested.