Market Review - September 2020
Emerging markets slipped slightly in September as a stronger US dollar, further tensions between the US and China, and volatile prices in the technology sector placed downward pressure on the index. US efforts to prevent Chinese companies from remaining in their markets continue to weigh on sentiment and an end to the sell-off in the US dollar may cause more pain for EM companies and households making purchases of imported goods.
International Shares and infrastructure
International shares finished the month lower as investor sentiment turned negative as technology stocks dragged down the overall market. The month saw brief rallies following reports of progress on a COVID-19 vaccine, however concerns about the November election in the US, and an increase in European COVID-19 cases weighted heavily on investor sentiment.
Valuations in Europe continue to remain more attractive on a price-to-earnings basis than in the United States but repeated waves of COVID-19 and a poor outlook for the region’s banking system has meant that the regional index has struggled to rise. Japan continued to rally, albeit at a slower pace than in August as the country brought its second wave under control and attractive valuations drew in investment. US shares were more volatile than in July and August as high valuations, particularly in the technology sector, led to volatility.
Australian Dollar and Australian Shares
The Australian dollar fell during September as risk sentiment deteriorated and investors speculated that the Reserve Bank of Australia will further reduce interest rates from 0.25% to 0.1% at its next meeting in early October. The dollar rose slightly as a rally in local and international share markets at the end of the month signaled improving risk sentiment but still finished the quarter down by almost 3%. Australian shares also ended the month lower as a new bout of volatility raised questions about high valuations in IT and consumer discretionary stocks, and the prolonged economic shutdown pulled down valuations in commercial real estate.
Australian fixed income rallied in September as speculation that the Reserve Bank of Australia will announce further easing at its October meeting placed downward pressure on yields. International fixed-income investors were also helped by central banks. In the US, yields fell as the Federal Reserve signaled it plans to maintain near-zero interest rates until 2023.