Funds investing in Japan topped the performance rankings in September 2021.
According to data from FE Analytics, the IA Japan and Japanese Smaller Companies sectors registered the biggest gains for the month, rising 4.62% and 3.49% respectively.
Indeed with a rise of 4.23%, the Topix was the top performing index and was the only major stock market to register a positive return in September.
Over the same period the FTSE 100 fell 0.16%, the S&P 500 declined 4.68% and the MSCI World index ended the month down 3.69%.
But the same cannot be said for Latin America. With a fall of 8.13%, the IA Latin America sector was the worst performer, followed by UK Index Linked gilts (down 5.48%) and European Smaller Companies (-4.47%).
Matter of politics
Ben Yearsley, investment director at Shore Financial Planning, said the recent bounce in Japan, in which the Topix hit its highest level since 1991, is being widely named the “Suga rush”. This is because it has been driven by Yoshihide Suga standing down as prime minister earlier in the month.
“Suga’s handling of covid had been widely criticised and a change of leadership to new prime minister Fumiko Kishida brings hope of a stronger recovery from the pandemic,” he said.
After the relative excitement of multiple all-time highs in the US markets in August, Yearsley said September was more muted with covid worries, inflation and energy prices dampening enthusiasm.
“It seems clear that economic growth is slowing, and that inflation is higher at this point than central bankers wanted expected,” he said. “Have they let the inflation genie out of the bottle? There are an increasing number of commentators who think so.”
Bond market front and centre
But to put the contrary argument, Yearsley added that there are still many who think the current spike is temporary and believe there could actually be negative inflation next year.
“It does feel strange that QE is continuing in the face of these inflation numbers and decent economic growth in labour markets,” he said.
In this environment, Yearsley believes that the bond markets are starting to become the main story to watch for, with both the Bank of England and US Federal Reserve hinting at sooner interest rate rises than previously expected.
In response, he noted the US 10-year yield rose from 1.31% to 1.49% in September, while the UK 10-year gilt yield increased from 0.71% to 1.02%.
“On the commodity markets gold had a lacklustre month falling $60 in September to end at $1,757 (£1,290, €1,500) an ounce,” he added. “Oil continued the stellar run of the last few months with the price of Brent Crude gaining almost $6 to finish at $78.52 – it briefly topped $80.”
