Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

SEPTEMBER and October are traditionally when investors nerves get frayed. And 2021 is proving no exception to this seasonal rule.

Even in a bull market, investors will always find something to be concerned about. It’s why we often talk about climbing the wall of worry. So, what’s on the radar this week?

Chinese property

You could be excused for not having heard of Evergrande. It’s China’s second biggest property developer, and a Fortune 500 company, but it has passed most of us by. Until this week, that is.

Evergrande is not only a big company. It has big debts too. About $300bn at the last count. And it is struggling to service its debts as the Chinese property market slows. Much of what it owes is to ordinary Chinese home-owners who have put money down on apartments that are yet to be built. If Evergrande were to collapse (and its shares have fallen 85% this year) then it would have a big impact in China.

But because the Chinese property market is so important to that country’s overall economy, and because many banks and insurers have a big exposure to the company, and to other real estate developers, it could have a bigger impact around the world.

This week, the Hang Seng index fell 3.5% after a 19% fall in Evergrande shares. That weakness then spilled over into Europe and into Wall Street futures too. It is too early to tell whether Evergrande will have wider market repercussions, but investors are preparing themselves.

And it’s not just shares that are in focus. Iron ore tumbled 20% last week on concerns about Chinese property, a big source of demand for steel in recent years.

Central banks

The other big story this week is what central banks, and in particular the Federal Reserve in America, are getting ready to announce after their rate-setting meetings this week.

At the recent Jackson Hole symposium for central bankers, Fed chair Jay Powell warned that the time is approaching when the US’s pandemic stimulus must go into to reverse. That means, first, the tapering away of bond purchases, currently running at $120bn a month. Then in due course, it will include interest rate hikes from today’s rock bottom level.

What exactly in due course means should become clearer this week when the so-called dot plots of rate setter forecasts are unveiled. For the first time they will give us a glimpse into expectations for interest rates in 2024. Markets have flourished in a low-interest-rate environment. It remains to be seen how they will react to the reality of less stimulus in future.

A key support level for the stock market over the past year has been the 50-day moving average. Shares are testing that level today. Perhaps more of a concern is the 200-day average which for the S&P 500 is around 4,100. That would represent a 10% correction from the recent high.

Five-year performance

(%) As at 31 August

2016-2017 2017-2018 2018-2019 2019-2020 2020-2021
Hang Seng index 22.3 1.1 -9.9 -1.9 3.6
Evergrande 354.3 18.9 -40.0 -1.2 -75.3
Iron ore 25.2 -10.7 28.6 46.8 15.9

Past performance is not a reliable indicator of future returns

Source: Refinitiv, total returns as at 31.8.21.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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