September Report

Market Review 

Global share markets finished September higher in local currency terms, with most sectors and regions posting gains. US inflation showed further signs of heading back to the Federal Reserve’s (Fed’s) 2.0% target during the month. This enabled the central bank to shift its focus to the second component of its mandate, that of maximising employment. The Fed duly cut its interest rate by 0.5% to 4.50% – 5.00% in September to support the labour market. The European Central Bank also lowered rates, delivering its second cut in three months to support the region’s faltering economy.

China unveiled a sweeping package of monetary stimulus measures aimed at reducing borrowing costs and boosting credit availability. Key measures included lowering the minimum down payment on mortgages to 15%, to stabilize the struggling residential real estate market. The creation of a new lending pool to encourage share buybacks and enable asset managers to buy more domestic stocks, was also announced. Additionally, China’s government promised it would shortly support monetary easing with fiscal support. This brought a strong improvement in market sentiment, which resulted in the MSCI China Index soaring more than 20% in just two weeks during late September. This was its strongest performance in more than a decade.

Despite escalating tensions in the Middle East, oil prices fell upon growing expectations that the OPEC+ group of oil exporters will increase production later this year. It also reflected market rumours that Saudi Arabia may abandon its US$100 per barrel price target.

Portfolio Commentary

Countries that are home to almost half of the world’s population will have held national elections in 2024. By the time of our next report, we will (likely) know the result of the one which is most significant to global equity markets, the November US presidential election. It may bring policy shifts which have implications for the global economy, in particular the US share market, in which 60% of the Portfolio is invested. The result remains finely balanced, with any policy changes and their impact on regions, sectors or stocks even more uncertain. Nonetheless, the Portfolio Managers have carefully analysed the risks and remain confident the Portfolio is appropriately positioned for any outcome.

Throughout the year, the Portfolio has continued to reduce its exposure to stocks which are valued on higher multiples of earnings, particularly in the US. The proceeds have been reinvested into high-quality businesses (those with strong balance sheets and positive cash flows) that we believe can grow earnings under any economic or market environment which may lie ahead.

This leaves the Portfolio with an underweight position to the US relative to the index. It is possible that the election aftermath gives rise to undue market volatility, leaving high-quality businesses more attractively valued. In such circumstances the Portfolio will take advantage of opportunities to increase its weightings to US quality growth companies at more reasonable price levels.

The Portfolio is focussed on identifying great companies through bottom-up analysis and continues to find exciting opportunities in health care, communications services and industrials, in which it maintains overweight positions.

Strong stock performance in financials, health care and communications services, an overweight position in communications services and an underweight to energy boosted relative returns in September. This was somewhat offset by an overweight position in health care and weaker stock performance in consumer discretionary.

One of the strongest contributors to relative returns in September was the Portfolio’s overweight position in Hong Kong-based pan-Asian life insurance group AIA Group. It outperformed upon stronger investor sentiment towards the broader China share market and hopes that the stimulus measures will support consumer demand in the life insurance sector.

Germany’s leading online real estate portal Scout24 outperformed after real estate advertising company REA Group increased its bid to acquire the leading UK property portal Rightmove. The move highlighted the attraction of the European online property listing industry and fed speculation that Scout24 may itself become an acquisition target.

Japan-based entertainment and electronics group Sony underperformed after its internally developed online game Concord failed to generate the expected user interest. Furthermore, the launch of Grand Theft Auto 6, which has been highly anticipated by gamers and which was expected to drive Sony’s hardware sales and live services revenues next year, was delayed until 2026.

Brazilian clearing house and stock exchange operator B3 underperformed amid a broad decline in Brazilian share prices during September. This followed the country’s central bank raising interest rates in response to a robust labour market and rising wage pressures.

There were no positions established or exited during September.