Although returns for September were negative, developed market equities remain in positive territory for 2021.  The performance of emerging market equities remains flat year to date and global government bond yields rose in September, adding to year to date losses, with expectations of a tightening of monetary policy impacted.  As the month unfolded, a growing list of concerns arose around a peak in the rate of global economic growth being reached, ongoing supply constraints and rising inflation. This in addition to a stream of negative news coming out of China which along with Europe is suffering an energy crisis.

While US, UK and European equities were flat during the third quarter of 2021, Japan proved to be the best performing developed equity market, largely as a result of its new Prime Minister and an economic reopening as COVID-19 cases declined.  Looking more closely at the UK market, equities were driven by a variety of factors during the quarter.  While there were some clear sector winners (such as energy on the back of a recovery in crude oil prices), the difference between the best and worst performing stocks was significant.  Small and mid-cap equities declined in line with higher growth areas of the market in September, but performed very well over the quarter as a whole.  Furthermore, merger and acquisition activity remained an important theme. During September, key news from Europe came the Germany Federal election.  While it may take time for government to be formed and for the replacement of Angela Merkel as Chancellor, the final outcome is not expected to have a major impact on German or European equities as it is unlikely that the far left or far right parties will be involved in the government.

Performance from emerging markets has diverged. There has been positive performance from Indian equities as COVID-19 concerns abated, the persistent trend of negative events in China weighed heavily however on mainland and Hong Kong’s stock markets.  China’s decision to turn private tutoring companies into non-profit organisations, further regulations on the technology sector and the potential for the country’s second largest property developer, Evergrande, to default on its debt payments, were some of the main reasons why investors became increasingly concerned. Going forward, the general consensus is that it is unlikely that China will prevent companies in other industries from making profits, the banking system’s exposure to the most at risk property developers is manageable and therefore contagion is unlikely.  While new regulations may cause earnings to grow at a slower pace, the overall outlook for Chinese equities in many sectors remains robust.

The US Federal Reserve Bank announced their intention to reduce their monthly bond purchases this year (possibly from November) until mid-2022.  The Federal Reserve expectation is for US interest rates to increase to 1.75% by the end of 2024.  Markets were not expecting rates to increase at such a fast pace which has resulted in a rise in US bond yields (and a fall in bond prices).  In the UK, the Bank of England indicated that interest rates may increase before the end of this year, however the latest guidance suggests that a rate rise could occur early next year along with scaling back of the Bank’s asset purchase scheme.  As a result, UK government bond yields also moved sharply higher during September. Interest rate rises in Europe and Japan seem further away with inflation concerns less pressing and economic recovery at an earlier stage.

As we head into winter, uncertainty in relation to COVID’s potential impact on health systems may well increase and a rise in hospitalisations may restrict economic growth, however the success of vaccination programmes is expected to significantly reduce the impact.  Elevated consumer savings and strong wage growth should ease the pressure that most consumers are currently facing due to an increase in prices.  As we enter the final quarter of 2021, some of the concerns that have weighed on investor sentiment in the past month are likely to remain, particularly as the inflation environment may be more volatile in coming years than we’ve come to expect recently.  Overall, the risk of recession remains low nevertheless and a positive outlook for earnings growth should support equity markets.  The pattern seen so far this year, of equities outperforming government bonds, seems likely to continue in the short term at least.


Market Performance


2021 Year to Date
FTSE All-Share +13.56%
FTSE World ex-UK +14.22%
FTSE Actuaries UK Conventional Gilt All Stocks -7.40%
FTSE Actuaries/ UK Index-Linked All Stocks -0.74%


Total returns in GBP to 30/09/2021



Key Rates  
Bank of England Base Rate 0.10%
Inflation (Retail Price Index)* 4.80%


 * August 2021

Source of data: FE Analytics,,

The content contained in this article represents the opinions of MacIntosh & James Partners Ltd. The commentary in no way constitutes a solicitation of investment advice and should not be relied upon in making investment decisions. Past performance is not a reliable indicator of future results. The value of your investments can fall as well as rise and are not guaranteed.