Weaker growth momentum

Fear that Chinese housebuilder Evergrande will not be able to meet its obligations was one of several factors which caused a fall in share prices in September.

For the month as a whole, the US S&P 500 Index fell by all of 4.7 per cent measured in USD, while the European Stoxx 600 Index dropped 3.3 per cent measured in EUR and the Nordic VINX Index declined by 5.8 per cent measured in NOK. In Norway, however, the Oslo Stock Exchange (OSEBX) rose by 1.9 per cent.

China fears and rising interest rates

Like most years, increased volatility characterised the stock exchanges in September. One of the factors contributing to the stock market falls was the uncertainty surrounding Chinese property giant Evergrande. Several parties have pointed out that the problems this company is experiencing are similar to those surrounding the Lehman Brothers’ bankruptcy, and they therefore fear a systemic risk. This may have major negative consequences for China’s housing market, which is an important growth driver in the country’s economy. In addition, the long-term interest rates rose because the US central bank (FED) has indicated it will gradually reduce its bond purchases.

The growth outlooks are peaking

Another factor that has affected the markets is the loss of global growth momentum. The growth outlooks have constantly been revised upwards in the previous quarters. At the beginning of the fourth quarter, a lot of the reopening effects have been achieved and we see signs of the growth momentum weakening, which is negative for the stock markets. However, it must be added that the level of global growth is still high even if it is no longer unexpectedly positive.

Continued focus on inflation

The interest-rate level was boosted by increased expectations of inflation caused by, among other things, galloping energy and electricity prices. This is a challenge for the FED since it has to balance inflation considerations against lower growth outlooks. While energy prices may by their nature be temporary, it remains to be seen whether a tighter labour market will lead to higher wage growth and long-lasting inflation. A possible reduction in the central banks’ liquidity thus appears to be a risk factor for the market.

The road ahead …

Despite unrest in the stock market during the month, shares still appear to be a good alternative. The alternative yield in the fixed-income market is low and company earnings are continuing to grow – both of which provide support to the stock market.

«Buy land, they’re not making it anymore.»
Mark Twain