Q3 2021
During the ongoing global recovery from the Covid-19 pandemic, commodities emerged as the best-performing asset class.
As the global economy continued its rebound from the pandemic, demand for commodities surged, leading to supply chain strain in certain industries. In the third quarter, commodities experienced a significant gain of 9.9%, bringing year-to-date gains to 38.4%. Concerns over rising inflation levels drove a shift in central bank policies, resulting in a 3.1% return for global inflation-linked bonds.
Developed market equities saw modest gains of 2.4%, while emerging market equities suffered a setback with a loss of 5.8%, erasing earlier gains made in the first half of the year.
The global bond market showed slight improvement, with high yield and corporate bonds rising by 2.1% and 1.6%, respectively.
Japanese equities exhibited strong momentum in September, delivering a third-quarter return of 7.3% and emerging as the top performer among developed markets.
US equities secured second place, with the S&P 500 index recording a gain of 3.1%, largely driven by robust earnings in August. However, concerns over economic growth and inflation weighed on the US market in September.
The energy sector's performance buoyed the UK equity market, as the FTSE All Share index climbed 2.2%. Eurozone equities remained relatively flat, dragged down by consumer discretionary despite strong returns in the energy and information technology sectors.
Asia ex-Japan equities experienced a significant decline of 6.2% during the period, largely driven by a major sell-off in China. This decline also impacted emerging market equities, which dropped 5.8%, as concerns over the credit risk associated with China Evergrande Group spread globally.
Globally, the financials and energy sectors emerged as the standout winners in the third quarter, delivering returns of 4.6% and 3.8%, respectively. This reflected the surging demand for energy and expectations of rising interest rates in the upcoming months. Conversely, the materials sector experienced the most significant decline, with a loss of 2.7%, as ongoing raw material availability issues cast doubts on meeting high demand.
The bond market witnessed a modest recovery, potentially indicating shrinking risk appetite. Market pricing reflected expectations of continued inflation in the near term, as global inflation linkers returned 3.1%. However, UK Gilts and Sterling Corporates faced declines of 1.8% and 0.1%, respectively, as expectations of tightening monetary policy pushed yields higher.
Crude oil and commodities continued their upward trajectory in the third quarter, with year-to-date returns reaching 53.7% and 38.4%, respectively, driven by sustained demand. The property sector also experienced a strong quarter, benefiting from increased consumer confidence as economies reopened.
