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CurAlea Associates LLC is an independent risk and due diligence advisory firm focused on hedge funds and family offices.

Tuesday, October 1, 2013

September 2013 - Monthly Market Commentary

September brought renewed risk appetite to global markets despite the lack of progress in avoiding an October US government shutdown and debt default.  Markets were boosted by a pull back in US treasury yields, which accelerated following the surprise mid-month decision by the Federal Reserve not to taper its pace of asset purchases.  Stronger export and manufacturing data from China also provided support, particularly for emerging market and other risk currencies.
 
Announced corporate deal activity was strong in September, most notably in the TMT sectors, with Verizon’s $130 billion purchase of Vodafone’s stake in Verizon Wireless, Microsoft’s $7 billion purchase of Nokia’s mobile handset business, and American Tower’s $5 billion purchase of Global Towers; other notable deals included Koch Industries’ $7 billion acquisition of Molex and the $6 billion acquisition of Neiman Marcus by Ares Management and the Canada Pension Plan Investment Board.

All major developed market equity markets rose in September, led by Spain (+11.4%), Japan (+8.4%), Hong Kong & Germany (+5.9%), and France (+5.4%).  The S&P 500 rose 3.1%, while US small caps continued to outperform with the Russell 2000 up 6.4%; YTD the Russell 2000 has outperformed the S&P500 by 6.9% (27.7% vs 20.8%).  Sector dispersion was significant across US sectors; Telecom was the worst performing sector (-0.5%) while Industrials was the best performing sector (+5.7%); YTD Telecom has been the worst performing sector (+5.7%), while Consumer Discretionary has been the best performing sector (+29.1%).  Large cap growth outperformed large cap value by 2% in September.  Emerging Market equities rallied sharply, led by Argentina (+12.7%), Russia (+7.8%), Thailand (+6.9%), and Brazil & China (+5.3%).
  
In currencies, the USD Index fell 2.3% in September, with losses against all major developed market currencies except the Yen.  Strength was led by the New Zealand Dollar (+7.4%), Australian Dollar (+4.7%), and British Pound (+4.4%).  The dollar was also weaker against most emerging market currencies with the exception of the Indonesian Rupiah (-2%); the strongest emerging market currencies were the Brazilian Real (+7.4%), Indian Rupee (+6.6%), Korean Won (+3.2%), Thai Baht (+3.0%), and Russian Ruble (+2.9%).

US Treasuries rallied in September most notably in the belly of the yield curve.  10 year rates closed the month at 2.61%, down from 2.78% at August month end and down from the 9/6 intraday high of 3.00%. Investment grade and high yield US credit spreads tightened in the first half of September, but widened in second half of the month to close roughly flat on the month.  European sovereign spreads tightened with the exception of Italy.

In commodities, the GSCI index closed down 3.4% in September, led by weakness in Precious Metals (-5.3%), Energy (-4.5%), and Agriculture (-1.0%); gains were seen in Industrial Metals (+1.5%) and Livestock (+1.9%).  Within individual commodities, Sugar led gains (+7.8%), followed by Cotton (+4.5%), Wheat (+3.7%), Feeder Cattle (+3.4%) and Copper (+2.7%); Gasoline was the weakest performer (-8.7%), followed by Corn (-8.4%), Platinum & Silver (-7.7%), Soybeans (-5.5%), Heating Oil (-5.3%), and Gold (-4.9%).

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