October ECONOMIC UPDATE

By Craig Turnbull, Active Super Chief Investment Officer
October 2021

Historically, September and October are notoriously difficult periods for stock markets and recent events show that this year is no exception.

The S&P /ASX 200 has come off the record high struck in August despite encouraging news about the national vaccine roll-out and the reopening of the nation’s most populous state.

Nevertheless, while the “sell in May and go away” investing adage has become part of common folklore, investors who followed this advice in 2021 would have missed out on the solid gains recorded over the winter months. 

This was reflected in our end of financial year report when Active Super achieved some of its best investment returns on record. In 2020-21, we had the highest-ever returns for the High Growth, Balanced Growth and Balanced options*. 

While the market has come off its peak due to offshore headwinds such as concerns about Evergrande defaulting on its debt obligations, hints of rising inflation and expectations of modest profit growth, the market benchmark is still up around 10 per cent year to date.

As expected, the Reserve Bank of Australia left the official cash rate unchanged at 0.1 percent and will maintain its weekly $4 billion bond-buying program until at least February to keep a lid on interest rates.

RBA Governor Philip Lowe restated he is planning to keep the cash rate steady for another three years until the inflation rate sits sustainably within the 2 to 3 per cent range.

The economy is forecast to take a short-lived hit and fall into negative territory in the September quarter due to the prolonged lockdowns in NSW and Victoria before strengthening again in 2022.

“The Delta outbreak has interrupted the recovery of the Australian economy and GDP is expected to have declined materially in the September quarter,” Dr Lowe said in the RBA’s monetary policy statement.

“This setback to the economic expansion in Australia is expected to be only temporary. In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year.”

* Past performance is not a reliable indicator of future performance