#MarketingCommunication

The month of September finished with a brutal sell-off of all risky assets, and thus deepened the decline suffered by global equity markets this year so far. It also marked the end of a quarter in which the S&P500 was down by 5% overall – but September was the worst month since March 2020, the start of the COVID-19 pandemic. For the first time since the Global Financial Crisis in 2008 the markets of global equities record three consecutive negative quarters. Losses were widespread, with almost every market and sector finishing in negative territory for the moth. While the S&P500 sank by over 9% for the month, and major European markets lost 5%-7%, the pain was the worst in China, where the Hang Seng index plummeted by almost 14%.

Sentiment turned increasingly pessimistic in September as central bankers, reaffirmed that their commitment to fighting inflation was their highest priority irrespective of the implications for capital markets. Inflation remained stubbornly entrenched. Every major country and sector also suffered losses for the quarter as any hopes of interest rate cuts were dashed - The Federal Reserve, European Central Bank and Bank of England all raised interest rates in the third quarter. The Fed raised the federal funds rate by 75 basis points (bps) to 3.25% in September; the third consecutive 75bps increase, in a previously unthinkable move. This sent stocks lower. The communication services sector, including both telecoms and media stocks, was among the weakest sectors, along with real estate, which typically suffers in a rate-rising environment. The defensive segments of the market, like consumer staples and healthcare sectors proved the most resilient.

Bonds provided no relief. The 5-year US Treasury yields were up nearly 300 basis points in less than a year, which is the worst bond market in almost a century. The yield curves in many bond markets are also inverted, typically a precursor to a recession. In the US, for example, just in Q3 the yield of the 10-year government bond rose from 2,97% to 3,83%, and the yield of the 2-year one – from 2,93% to 4,23%, steepening the inversion (bond yields and bond prices move in opposite directions).

In Europe stocks also experienced further sharp falls amid the ongoing energy crisis, rising inflation, and fears about the outlook for economic growth. Every sector posted negative returns. The ECB raised interest rates in September, taking the refinancing rate to 1.25%. Annual inflation for the Eurozone continued to accelerage and was estimated at 10.0% in September (up from 9.1% in August). Energy costs continued to be the largest contributor to inflation. Nord Stream 1, the main pipeline supplying gas to Europe from Russia was closed for maintenance again in early September. This put even more pressure on power generators, many of whom need to buy natural gas from higher cost sources, and strengthened worries over potential energy shortages this winter. The news also sent the Euro to a 20-year low versus the US dollar.

The Bulgarian stock  market ended the period in a different fashion from the global financial markets – once again emphasizing its diversification advantages. Against the backdrop of serious carnage abroad, the main Bulgarian stock indices finished the month with a more temperate drop – in the range of 3%-4%. Among the local companies, the best performer was the real-estate investing company Sopharma Properties AD, whose price rose over 12.5% for the month, and the worst – the diversified agricultural holding Agria Group Holding AD, whose share price fell almost 20 percent.