Monthly Commentary – September

Global equities were flat overall in September, with investor sentiment still dominated by the uncertainty in international politics. As so often recently, much of that lack of clarity stemmed from the escalating trade tensions between the US and China. After imposing another $200 billion of tariffs on Chinese goods, President Trump suggested that a further $267 billion could follow – essentially covering all US imports from China. Hopes for a resolution rose when Steven Mnuchin proposed a new round of trade talks with Beijing, but were dashed when China declined an invitation to attend negotiations in Washington. Across the Atlantic, meanwhile, Theresa May’s blueprint for Brexit was rejected by EU leaders at a summit in Salzburg, leaving negotiations at an impasse.

The strongest region was Latin America, which bounced back from recent weakness. However, the electoral outlook in Brazil remains uncertain ahead of October’s election. Japan was also strong, despite suffering two natural disasters in one week, as Shinzo Abe won re-election as leader of the Liberal Democratic Party. This opens the door for him to become Japan’s longest serving prime minister. The UK also recorded solid returns. The worst performing region was Asia Pacific (ex Japan), where declines were driven by weakness in China. European markets were slightly down, as investors were alarmed by the Italian government’s decision to target a higher than expected budget deficit, setting the country on a collision course with the EU.

Real estate stocks produced the weakest returns in September. Information technology also lagged as some of the most prominent internet companies faced questions from Congress over election interference and trade tensions weighed on the demand outlook for semiconductors. In contrast, the global uncertainties meant that telecommunications and healthcare stocks benefited from their perceived defensive qualities. The strongest returns came from the energy sector as the oil price reached its highest level for four years, reflecting worry over the US sanctions on Iran and concerns that US shale output will slow.

In our portfolio, Hess, the US-based oil exploration and production company, was a beneficiary of the rising oil price. The oil sector has been out of favour amid concern over the long-term sustainability of the industry, but we believe that these fears are overblown. We see great potential in Hess’s 30% interest in an offshore Guyana project, one of the industry’s biggest discoveries. With first oil unlikely to be produced until 2020, our patient approach means that we are content to wait for this project to bear fruit in the belief that we bought into the company at a time when its shares offered unacknowledged value.

Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.

Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this article should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.