Monthly market update November '20
The following update is from Willis Towers Watson, the views, thoughts, and opinions expressed in the text belong solely to the author.
Global equity markets rallied strongly in November after giving up ground in October, with positive news about coronavirus vaccines supporting the MSCI World ex Australia return of 11.6% (hedged to AUD), with value stocks staging a sharp rebound from their recent poor relative performance. The results of the US election were also viewed favourably by markets, perhaps because Joe Biden’s victory was not accompanied by control of the Senate (pending run-off elections in Georgia), limiting his ability to increase corporate taxes. Enthusiasm was tempered, however, by the growth of COVID-19 cases in the US and Europe and the resulting restrictions put in place in a number of countries. Conditions in Australia continued their positive trajectory with Victoria achieving the milestone 28-day breakthrough of zero COVID-19 cases after enduring the toughest lockdown measures in the country.
US economic data broadly continued its positive trend, with the US unemployment rate coming in at 6.7% in November (from 6.9% in October). The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) increased to 90 in November, topping October’s previous record high of 85, as the demand for housing continues. The Markit US Manufacturing PMI increased to 56.7 in November from 53.4 in October (any number above 50 signals an expansion in manufacturing activity compared to the previous month). The US equity market performed strongly, with the S&P 500 Composite returning 10.9% (in local currency terms). Supporting this rebound was a string of positive results from S&P500 companies for the September quarter, of which around 83% surprised on the upside (compared to longer term averages of 75%).
Chinese equity markets were positive in November, but lagged global markets, with the Shanghai Composite Index returning 5.2% (in local currency terms). Chinese business conditions improved in November, with the Caixin Manufacturing PMI rising to 54.9 in November, from 53.6 in October (a reading above 50 indicates an expansion of the manufacturing sector compared to the previous month). The economic data in November marks the seventh straight month of growth in factory activity as the broader industry continues to recover and gain positive momentum. The CNY appreciated 1.8% against the USD, with 1 USD buying 6.58 CNY at the end of November.
European equities, as measured by the Euro Stoxx 50 Index, returned 18.1% (in local currency terms) on the back of positive news on the vaccine, despite evidence that the virus is ravaging the European economy once again. The Eurozone PMI Composite Output Index fell in November to 45.3, from a reading of 50 in October, signalling a contraction in activity. The Eurozone Consumer Confidence Index continued its precipitous fall since September, coming in at -17.6, its lowest reading since May 2020, reflecting growing concerns about what lockdown measures may have on economic activity due to the increase in coronavirus in the region.
Emerging markets (measured by MSCI Emerging Markets Index) returned a positive 4.1% for the month in AUD unhedged terms, on the back of broader market strength.
Australian shares, as measured by the S&P/ASX 300 Accumulation Index, returned 10.2% over the month, with a continuation of positive news on the virus front, the Reserve Bank of Australia reducing the cash rate to 0.1%, and an additional $100 billion bond buying program announced in a bid to see inflation within the 2-3% target range. The rotation into value stocks and a rebound in the oil price saw Energy as the number one ranking sector by a significant margin (+28.2%). Financials were the second highest performer (+16.1%), followed by Telecommunication Services (+14.4%), Industrials (+12.0%), Consumer Discretionary (+8.4%) and Materials (+7.7%). Sectors that had performed relatively well in the downturn experienced more modest returns: Information Technology (+4.1%), Health Care (+2.9%), Utilities (1.5%) and Consumer Staples (-0.7%). The Australian listed property market increased by 12.9% in November, as measured by the S&P/ASX 300 A-REIT Accumulation Index. The Manufacturing PMI (as measured by the Ai Group Australian Performance of Manufacturing Index) fell, however, to 52.1 in November, from the 56.3 recorded in October, as optimism around the economic recovery moderated. November’s reading, however, still marks an expansion and the second consecutive month of growth.
Major global bond yields were mixed in November, with the Australian 10-year Government bond yield rising by 8bps to 0.91%, the US 10-year Government bond yield falling by 2bps to 0.84%, the UK 10-year Government bond yield increasing by 4bps to 0.31%, the German 10-year Government bond yield rising by 5bps to -0.57%, the Japanese 10-year bond yield falling 1bps to 0.03% and the Italian 10-year Government bond yield falling 13bps to 0.59%.
The Australian dollar appreciated in November, increasing 4.5% over the month against the USD, and ending November at 73.5 US cents. Similarly, the Trade Weighted Index closed at 61.5 for the month, up from 59.5 for the month of October indicating appreciation of the AUD against the currencies of its major trading partners
This information is general information only and does not take into account your individual objectives, financial situation or needs. Accordingly, before taking any action, you should consider whether it is appropriate to you, having regard to your objectives, financial situation and needs. You should obtain a copy of legalsuper’s Product Disclosure Statement (PDS) which is available by contacting legalsuper or via its website at legalsuper.com.au before making a decision. Past performance is not a guide to future performance.