09 / 21


Last month was dominated by rising interest rates. Since the U.S. Federal Reserve meeting and the associated announcement of the tapering starting in November, capital market yields worldwide knew only one path - and that was up. This was supported by the fact that COVID-19 case numbers worldwide began to fall again. Fears about the Chinese real estate developer Evergrande dominated Asian markets in particular, but subsided significantly towards the end of September. Widespread contagion, stemming from Evergrande's imminent bankruptcy, is not currently implied by the market (see Focus). China's government is likely to "solve" the problem in a centrally coordinated manner, as always - the government wants to prevent further moral hazard at all costs. The government's goal is to curb speculation in the real estate market. This will probably not be achieved painlessly and, starting from China, may leave a mark on regional and global growth, depending on how strongly the central government stimulates the economy at the same time. It remains questionable how the government will stimulate when the real estate market has historically been the means for stabilizing growth. After the elections in Germany, a government with a three-party alliance between the SPD, the green party and the FDP is likely after 16 years of the grand coalition under the Merkel era. But other constellations without the SPD are still considered possible, even if it is less likely that the CDU/CSU, the green party and the FDP will reach an agreement. For the markets, the elections had little directional impact - the focus was on developments on the interest rate front.

Equity Markets

Global stock markets reacted to rising interest rates with declines. Defensive Swiss heavyweights such as Nestlé, Novartis and Roche were hit hard. However, higher-valued quality stocks also suffered heavily from rising interest rates. The SMI lost more than 6% in September, joining the ranks of losers worldwide. More cyclical markets such as the FTSE 100 and the DAX (-3.6%) fared better. In the case of the DAX, there was still an expansion from 30 shares to a new 40 shares in September. Deutsche Börse initiated this expansion after the billion-dollar bankruptcy of Wirecard and the subsequent inclusion of Delivery Hero, which has never posted positive figures since its founding in 2011. With the realignment, no more companies should be included in the DAX in the future that have not been able to report positive EBITDA for at least two years in a row. The most positive development was the Japanese Nikkei225, which gained 4.85% due to upcoming new elections in Japan. Despite the Evergrande debacle, the Chinese mainland stock exchange CSI 300 made it into positive territory. The Hang Seng, however, slipped over 5%.

Interest Rates

The U.S. Federal Reserve surprised the markets with its ambitious tapering schedule. Overall, however, it must be noted that monetary policy will remain very expansionary. The Fed's balance sheet will continue to grow during the tapering phase. Other central banks around the globe are already busy tightening monetary policy - for example, the Norges Bank has already raised interest rates from zero to 0.25%. The Bank of England is also discussing a tightening of the key interest rate for this year. Until recently, bonds issued by Switzerland and Germany had negative yields to maturity for 30-year maturities. This has now changed with the rise in interest rates in September.

Currencies / Commodities

Oil and liquid gas were unstoppable in September. The price of a barrel of WTI Crude rose at times by more than 11% and the price of gas climbed by as much as 34% due to the noticeable shortage. This may come as a surprise, as winter is still to come. Behind the rise is increased demand from Asia, especially China, where they want to substitute coal-fired power. Because of the drought in Brazil, the government has also felt compelled to fill the hydropower gap with natural gas. The situation has to be seen in the context of the ongoing transformation to decarbonize economies - as many countries have committed to the net zero target, there has also been sparse investment in fossil fuels, which explains the less flexible supply.


Rising interest rates are currently causing uncertainty and recalibration on the global financial markets. Due to high valuations, markets are already sensitive to the normalization of monetary policy at low interest rate levels. We see a déjà vu to February, when interest rates also led to heavy rotations between technology stocks and cyclicals. Furthermore, investor sentiment is very pessimistic due to various events (COVID and e.g. Evergrande) and the central banks are still behaving expansively despite curbing bond purchases. As energy prices rise, inflation will return a bit more stubbornly and play a key role for equity markets. As long as participants do not assume strongly "sustainable" inflation, equities with an emphasis on cyclical stocks should still be interesting in the current market phase.


Focus Market Forecast