SNAPSHOT2 min read

Market update – October 2021

A summary of our current economic and market views.



Charities Team

Rising bond yields and Chinese property keep investors on edge

September was the worst month of the year for global equities, but for now the pullback remains modest. The wobble has been caused by two concerns. Investors are worried about the prospect of higher borrowing costs, as bond yields rise from very low levels. There is also renewed anxiety about China’s property market – and in particular the fate of Evergrande, the country’s second largest developer. Markets are optimistic that a government-backed restructuring of the company’s $300 billion of liabilities will avoid a systemic shock. However, with the government focused on reducing debt across the sector, resolving the situation without some impact on growth could be challenging.

Central banks change tack

There has been a notable change in tone from central bankers in recent weeks, with policy makers acknowledging the risk that transitory inflation could turn into a more persistent phenomenon. The Federal Reserve has indicated that it may start winding down asset purchases as soon as next month, while the Bank of England surprised markets by suggesting it could raise interest rates early next year. Global energy markets have become the latest source of inflationary pressure. The short-term bottlenecks will ease, but the impact on prices could be felt for many months as shortages and disruption ripple through the global economy. 

New leaders for Germany and Japan

Negotiations continue, but it now looks likely that Olaf Scholz of the SDP will emerge as the next Chancellor of Germany. The mooted “traffic light” coalition could accelerate some of the shifts that were already underway in Germany. This coalition includes the Green party, which won 15% of the popular vote, and would give greater priority to environmental issues. It may also take further steps towards looser fiscal policy and greater integration with the EU, both of which should be positive for eurozone growth. There is likely to be less change following Japan’s recent leadership contest: the new prime minister, Fumio Kishida, comes from the same party as his predecessor and has said he will make no immediate change to fiscal or monetary policy.

Portfolio positioning

We expect that the ongoing economic recovery and low interest rates will remain supportive of equity markets. We continue to see opportunities in longer-term themes, such as healthcare and technology, as well as more cyclical sectors as economies fully reopen. However, we may be heading towards a more volatile period for markets as growth momentum cools, inflation remains at somewhat elevated levels and central banks begin the process of normalising monetary policy. We therefore maintain our exposure to defensive and diversifying assets within multi-asset portfolios. We have added to our credit exposure through a flexible fund with the ability to take a more defensive stance in times of market stress. We continue to see gold as an attractive hedge against inflationary tail risk, but it could come under pressure as yields rise.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.


Charities Team


The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.