Stock markets began to look on the dark side of events during September as inflation remained stubborn and persistent rather than the advertised ‘transient’.

The Federal Reserve has led other central banks in progress towards a tapering of their bond buying and clear hints that rates will rise in the New Year. Combined with the ongoing supply shortages and rising energy prices this did not present a comfortable background and US stocks are down around 2.5%, taking most markets lower with the notable exception of Japan, which is enjoying a change of political leadership and has gained around 5%.

For the Esk Fund, most of the positives came in Japanese stocks led by a 10% gain for Sony (also enjoying the successful float of Universal Music, signs of life in film and expansion in India) followed by M3 Inc, Shin-Etsu Chemical, even Sumitomo Mitsui managed a 4% gain. Otherwise, Nordson gained after good figures and McDonald's share price cheered a 7% lift in their dividend. The weakness that we saw last month in luxury stocks spread to L’Oreal this month while LVMH steadied.

On the negative side, weakness continued in the mining sector where Rio Tinto fell again, and there was a notable setback for the pharmaceuticals where Illumina fell around 12%, an interesting contrast to the euphoria that has greeted todays listing of Oxford Nanopore. The Swiss pharmas also weakened, Roche Holding and Lonza Group both fell back, while in the US, Johnson & Johnson slipped around 5% and we added to this holding, which was back to interesting levels again. Technology stocks weakened generally in the wake of rising long-term interest rates, Alphabet, Ansys and Microsoft all falling by around 5%, but Mastercard steadied after weakness last month and Oracle gained.

Banking stocks initially cheered the prospect of higher rates but then followed the rest of the market down. Recent gains had taken Morgan Stanley to all-time highs and into the Fund’s top holdings; we reduced the position by 20%. We still like Morgan Stanley for the long-term but there is better value to be found in banks elsewhere (though this is never going to be a big sector for the Fund). Our Swedish holdings, Industrivarden and Investor both fell back over the month and we added to the latter.

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