Last week’s RBA September meeting flagged a tapering of bond purchases, with its base case being positive economic growth in Q421 and solid growth through next year. Just a week earlier, at its US Jackson Hole conference, the US Fed hinted at a likely tapering of its bond purchasing program before year-end, although it left the exact timing open-ended. So, what exactly are the implications of a winding down of QE and will it spell trouble for the stock market?

As Australia continues to edge closer to vaccination targets of +70% and +80% the prospect of a sharp rebound in activity levels for many service-oriented businesses improves. With the reopening theme likely to dominate into the end of 2021, we have increased the exposure within the Wilsons Australian Equity Focus List to the domestic reopening theme.

The national accounts for the second quarter showed Australia’s GDP rose 0.7% relative to the previous quarter. This was above the consensus expectation of a 0.4% rise. The year-on-year (YoY) pace rebounded to a record 9.6%, albeit this is based on a comparison to last year’s deeply depressed second quarter.

The Australian market rallied through August, keeping pace with global equities. Our local earnings season gave a series of mixed messages and displayed a significant variance in results between sectors, with COVID-19 continuing to be a dominant factor in the operating environment.

We have pulled back our overweight banks call following a period of sustained outperformance. Key factors that have driven bank outperformance are now fading or are embedded in the consensus view and the prospect of further outperformance is now more balanced than it was 6-12 months ago.

At Wilsons, we believe an allocation to private equity (PE) makes sound strategic sense within the broader alternative investments portion of diversified portfolios. In our view, the case for private equity investment rests on three key pillars: a strong performance track record for the asset class, a deep and differentiated opportunity set, and significant diversification benefits.

In May 2020 our research spoke to a satellite holding in emerging market equities (EM) having the potential to add value for investors over the medium to longer-term. Following very strong performance from EM equities in the second half of 2020, the past 6 months have been more challenging, with a broadening regulatory crackdown impacting the Chinese equity market in particular.

Iron ore prices have fallen 35% since they peaked in May 2021 (at an all-time high), providing a headwind for share prices of the major miners - Fortescue Metals (FMG.AX), Rio Tino (RIO.AX) and Vale (VALE3.SA). In the short-term, the direction of the iron ore price is likely to dictate where the share prices of the iron ore majors head and there is likely to be significant hesitancy among investors in an environment where the iron ore price is falling.