Given the sell-off in bond yields so far this year, rising inflationary expectations, and the collapse of the Evergrande Group in China, it is unsurprising many global share market indices took a breather and recorded a lacklustre September 2021 quarter in terms of performance. Of the major markets, the Hong Kong Hang Seng Index was down 14.4 per cent whilst the Indian Sensex Index was up by 12.0 per cent.

Evergrande Group’s failure could see some social instability in China, and a severe haircut for bondholders and any restructuring seems likely. That said, many markets have still delivered double digit capital growth over the 9 months to September 2021, and this does not include the dividend yield on these markets. India (23.8 per cent), France (17.4 per cent), the US (S&P 500 14.7 per cent and Nasdaq 12.1 per cent), Australia (11.4 per cent) and Germany (11.2 per cent) have all done better than their long-term average on an annualised basis.

Analysis by Elroy Dimson, Paul Marsh and Mike Staunton from the London Business School reveals most major share markets have returned around 10 per cent per annum on average, inclusive of dividends, for the past 120 years.

Investors have been keeping a keen eye on bond yields. Rising inflationary expectations can be seen in many parts of the global economy. And there are many companies reporting production, distribution and logistic bottlenecks. The question which will influence asset valuations is whether these are only temporary.

Over the nine months to September 2021, Australian ten-year bonds at 1.49 per cent, US ten year bonds at 1.48 per cent, UK ten year bonds at 1.04 per cent have risen by 0.52 per cent, 0.56 per cent and 0.85 per cent, respectively. Nevertheless, by historic standards these bond yields are exceptionally low. Eventually German 10-year bunds, at negative 0.20 per cent, might even offer investors a positive return at some stage.

The thesis that Central Banks will keep a lid on the “price of money” and certainly below the rate of inflation is likely to prevail, even if there is a slight tap on the quantitative easing brake.

The biggest news on the commodity front was the crash in iron-ore over the September 2021 quarter, from US$214/tonne to US$119/tonne. Again by historic standards, and using the cash cost of production as a yardstick, anything above US$100/tonne is still an excellent price for all the large scale producers. The A$ came down to US$0.72 in sympathy from US$0.77 for the nine months and from US$0.75 for the three months. However, against the British Pound, the Euro and the Yen, exchange rate fluctuations have been limited.

One highlight has been the Australian farm sector which is in danger of making record profits in 2021 and the price of rural land, like many other asset classes, has been extraordinary. Our country friends are enjoying fabulous prices for both livestock and grains, in addition to relatively kind weather conditions.

The 3 months and 9 months to 30 September 2021