Global equities continued their positive run of performance in July and August driven by further reopening of economies, successful vaccine rollouts, positive economic data, rising corporate profitability and continued assurance of support from central banks. However, markets pared back some of these gains and delivered negative returns in September as concerns over rising inflation, supply disruptions and a peak in economic growth dominated investor sentiment. In the Eurozone, business activity continued its strong growth during the third quarter, though the rate of expansion softened in September, reflecting the peaking of demand in the second quarter and widespread supply chain bottlenecks. In the UK, the strong labor market report showed the economy continues to improve. the Bank of England kept the policy rates unchanged unlike the Fed that set out the path to tapering and higher interest rates. Crude oil price witnessed high volatility during the quarter as the demand boost from global recovery and the subsequent decision from oil exporting nations to hold supply steady in the face of rising shortages dominated the prices. Among equities, growth stocks outperformed value stocks while developed markets outperformed emerging markets in USD terms.
The portfolio underperformed its benchmark in the quarter. At a sector level, stock selection in communication services and no exposure to energy hurt performance, while stock selection in health care and an overweight to industrials contributed to performance. At the region level, stock selection in emerging markets and an underweight to Japan detracted from performance, while stock selection in Canada and the Pacific Rim contributed to performance.
Although global growth momentum has likely peaked in the second quarter, strong economic data, policy support and successful vaccine rollout continues to drive fundamentals. While the renewed COVID-19 surge may slow the pace of reopening, it is unlikely to be reversed and the rest of the year should still see a broader recovery across the major developed economies. JPMorgan believes that equities should do well in an environment of modestly rising inflation, as rising sales tend to offset higher input prices, which can be passed onto customers when demand is strong. Cyclically geared markets, sectors, and companies are likely to benefit, but it is crucial to differentiate cyclical from structural headwinds and tailwinds as the recovery takes shape.
Significant impacts on performance
+ Novo Nordisk A/S
Danish pharmaceutical company, contributed to relative returns. The company delivered strong quarterly results and upgraded full-year guidance with competitive growth metrics on the back of strong, obesity-launch dynamics.
+ Keyence Corp.
The Japanese manufacturer of various automation devices, contributed to relative returns. The company continues to expand its product development and product lines, while achieving stronger, organic sales-growth-automation than its peers.
- Bilibili, Inc.,
The Chinese video-sharing platform, detracted from relative returns. The stock experienced volatility through the quarter, largely due to heightened Chinese regulation concerns. Gaming revenue growth was also lowered for the full year, given fewer, new games have been approved this year.
- Iberdrola SA
The Spanish utility company, detracted from relative returns. Most of this underperformance was concentrated in September, after the Spanish government announced new measures to combat the impact of high electricity prices, including a new proposal to claw back the impact of high gas prices on electricity prices.