SEPTEMBER and October are traditionally the time when investors’ nerves are unraveled. And 2021 is no exception to this seasonal rule.
Even in a bull market, investors will always find something to worry about. This is why we often talk about climbing the wall of worry. So what’s on the radar this week?
You could be excused for not having heard of Evergrande. It’s China’s second-largest real estate developer and a Fortune 500 company, but it has passed most of us. Until this week, that is.
Evergrande is not just a big company. He also has big debts. About $ 300 billion at last count. And he is struggling to repay his debts as the Chinese real estate market slows. Much of what he owes is ordinary Chinese homeowners who put money on apartments that have yet to be built. If Evergrande were to collapse (and its shares have fallen 85% this year), it would have a big impact in China.
But because the Chinese real estate market is so important to the overall economy of this country, and because many banks and insurers have a lot of exposure to the company and other real estate developers, it could have a bigger impact. in the whole world.
This week, the Hang Seng Index fell 3.5% after the Evergrande stock fell 19%. This weakness then spread to Europe and to Wall Street futures as well. It’s too early to say if Evergrande will have a wider impact on the market, but investors are bracing.
And it’s not just the actions that are the center of attention. Iron ore fell 20% last week amid concerns over Chinese properties, a big source of steel demand in recent years.
The other big story this week is what central banks, and in particular the US Federal Reserve, are set to announce after their rate-setting meetings this week.
At the recent Jackson Hole Symposium for Central Bankers, Fed Chairman Jay Powell warned the time was approaching when the pandemic US stimulus must be reversed. This means, first, the decrease in bond purchases, which currently amount to $ 120 billion per month. Then, in due course, it will include interest rate hikes from today’s lowest level.
What exactly in due course means should become clearer this week when the so-called dot charts of rate regulators’ forecasts are unveiled. For the first time, they will give us a snapshot of interest rate expectations in 2024. Markets prospered in a low interest rate environment. It remains to be seen how they will react to the reality of less stimuli in the future.
A key support level for the stock market over the past year has been the 50-day moving average. Stocks are testing this level today. Perhaps of more concern is the 200-day average, which for the S&P 500 is around 4,100. This would represent a 10% correction from the recent peak.
(%) As of August 31
|Hang Seng Index||22.3||1.1||-9.9||-1.9||3.6|
Past performance is not a reliable indicator of future returns
Source: Refinitiv, total returns as at 31.8.21.