Market updates from October
In a Nutshell
October saw a continued political upheaval in the UK with several significant changes in government. However, the market response has been fairly positive, with growth in UK stocks; a slight strengthening of the pound against the dollar; and a decline in gilt yields. The US and Eurozone markets saw mixed performance - particularly in tech stocks - but generally more positive movements than seen in previous months. In China, growth outlooks look increasingly negative as Xi Jinping tightens political control; and the Chinese property market slump looks likely to continue.
Significant (and numerous) political changes in the UK
There was a lot of political chop-and-change in the UK this month. Following the fallout from the “mini-budget” announcement, Kwasi Kwarteng resigned and was quickly replaced with Jeremy Hunt. Hunt’s plan to reverse the proposed (and seemingly unfunded) tax cut proposals seems to have had a stabilising effect on the UK market. Following the announcement, gilt yields fell by over 0.4% points; the pound rose by over 2% against the dollar.
Truss followed shortly thereafter, announcing her resignation on 20th October. After a short-lived Tory leadership contest, Rishi Sunak is now set to take up the position of Prime Minister. However, markets have rallied in the face of this political upheaval. In the five days following Truss’ announcement the FTSE100 rose 1.3%; and following Johnson dropping out of the race, 10-year gilt yields fell to around 3.8% (from over 4% earlier in the month). However, as to be expected political turmoil has meant the outlook for UK markets is still fairly uncertain, with lots of short-term fluctuation.
Mixed performance in US and Eurozone markets
The US market has been a similarly mixed bag over the month, with the NASDAQ averaging out across October at around 1.05% growth despite a mid-month slump. This varied performance was apparent among the largest stocks in the index - over the month Tesla dropped by around 19%; Alphabet Inc was up around 5.5%; while Apple saw little move (around 1.3% across the month). The US also saw a dramatic slowdown in house price growth this month, which some have attributed to the Fed’s continuous sharp hikes in interest rates across the year.
Back on this side of the Atlantic, European markets had a generally positive month. The DAX (German stock index) was up nearly 7% over the month; CAC40 (French index) was up around 8.30%; Swiss Market Index over 5%; and the FTSE just over 4%. This marks a nice break from the general market turbulence seen over the past year.
Chinese markets take a turn
In China, Xi Jinping took on a historic (yet somewhat unsurprising) third term as president. In a speech to congress, Jinping reiterated his growth strategy that emphasises a shift away from export-driven growth toward more domestic consumer-demand-driven growth. He also reaffirmed the need for “national rejuvenation” and recovery from the damage of the COVID-19 pandemic.
However, so far 2022 has seen China growing significantly slower than other East Asian economies. While others have experienced rapid growth rates with the post-pandemic rebound in domestic consumption and high commodity prices, Jinping’s strict and persistent “zero-COVID” policy has stifled domestic demand and led many banks to repeatedly downgrade 2022 growth estimates for the country. The World Bank estimates China’s growth for 2022 at 2.8% - in contrast to an average of 5.3% for the East Asian region.
This slowdown has been exacerbated by a rising housing crisis in the region. An increasing number of mortgage defaults and plummeting house prices have stifled the domestic property market, which accounts for between 20-30% of Chinese GDP. While the government has pledged £26bn to kickstart reinvestment into property, the outlook is still fairly pessimistic. For example, a recent Citigroup research paper classified around 29.1% of Chinese property loans as “bad debt”.
Despite continuing political turbulence, October has delivered a welcome relief from negative market performance seen in previous months and offered us a fairly sizable rally in many markets. However, as the political scene settles in the UK and wider global market instability continues, we can expect to see continuing fluctuations in performance over the coming months. That being said, over a more sensible timeframe we expect this volatility to subside, so long-term investors can look to the opportunity ahead. In the meantime, sticking to a robust financial plan and remaining diversified in your investments can help to weather the storm.
The value of an investment, and any income from it, can fall or rise. Investors may not get back the full amount they invest. Past performance is not a reliable indicator of future results. Personal opinions may change and should not be seen as advice or a recommendation.