Cloudbreak Market Wrap 3Q 2021

15.10.21 Uncategorised By Anthony Hourigan
Cloudbreak Market Wrap 3Q 2021

Performance

It was a flat quarter in terms of market performance with the Aussie 200 rising 0.25% which is almost identical to the US market with the S&P500 rising 0.23%. Tech came under some pressure towards the end of the quarter, with the NASDAQ -0.51%. In the same time the Aussie dollar declined another 3.6%. Back in Feb the AUD was trading at USD $0.785 and is currently at $0.723 (-7.9%). This once again highlights the importance of offshore exposure.

 

Evergrande

One of the biggest stories to come out of last quarter was the Chinese property developer, Evergrande and fears for its solvency. The company is the second largest property developer in China and in September it failed to meet several debt payments. This sent a shudder around global markets, as a wind-up of the company would inevitably see property prices in China hit hard, in a country whose economic growth is heavily reliant on rising property values.

Then there was/is the question of “will the Chinese government intervene?” as there is a belief that Evergrande is too big to fail. What if they don’t intervene, and they let Evergrande fail? There is also the concern around Evergrande’s offshore debt exposure and therefore the global spread of the pain.

 

Are we due a correction?

This comes at a time when markets are running at stretched valuations – which we discussed last quarterly – so investors are ready to find reasons for a sell-off. At times like these, I’m always reminded of a great Peter Lynch (of Fidelity fame and author of ‘One Up on Wall Street’) quote:

“Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

 

Corrections are a healthy thing for markets, and personally I would welcome a correction. A correction would mean an opportunity for the market to take a breather, and to pick up quality companies at more reasonable prices. A correction is a market decline of 10% or more, and in Australia we got close at one point last quarter at a decline on the ASX200 of 6.4%, the S&P500 in the US was down 5.9% and the NASDAQ was down 7.9%, so not quite the technical definition of ‘correction’.

 

A recent study from Massachusetts Institute of Technology found that “Investors who are male, over the age of 45, married or consider themselves as having “excellent investment experience” are more likely to “freak out” and dump their portfolio during a downturn”. If you fall into this category (male, over 45 y.o, consider yourself to have excellent investment experience), and if we do get a correction, then stay calm this time! You can read about the study and watch an interview with Professor of Behavioural Economics at Duke University, Dan Ariely (what about that beard!) at the link below:

 

https://www.cnbc.com/2021/09/25/did-you-panic-sell-during-the-latest-stock-market-dip-heres-when-to-get-back-in.html

 

As always, the focus at any point of the market is the same. Make sure you own quality companies with reliable and growing cashflows, quality management and sustainable competitive advantages.

 

Until next quarter – onwards & upwards!

 

General Advice Warning: Any advice given herein is general in nature and has not taken into consideration your personal financial objectives, situation or specific needs. You should consider the appropriateness of the advice as it relates to you before acting upon it. Where a specific product has been mentioned, you should always consult the PDS before making any investment decision relating to it.

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