Investment update for November 2019
November saw share markets rally despite continued geopolitical uncertainty. Major central banks (US, UK, Eurozone, Japan) were quiet during the month. With regards to the ongoing US/Chinese trade dispute, Chinese officials confirmed in late November that both sides were close to resolving outstanding issues.
US and overseas markets
US shares rose during November, driven by positive talk around finalising a trade deal with China. Optimistic investor sentiment was buoyed by broadly positive economic data that confirmed the US economy expanded by 2.1% (annualised) over the third quarter. In the UK, the economy avoided entering a technical recession. Christine Lagarde took over as president of the European Central Bank in early November – Eurozone share markets responded positively to this news alongside improving economic data.
The Reserve Bank of Australia (RBA) kept rates on hold at 0.75%. Weak sentiment saw consumers use tax refunds to help pay down debt, while retail sales volumes were disappointing, falling 0.1% during the September quarter. Despite poorer consumer and business sentiment, property markets continued to strengthen following recent rate cuts.
The Australian share market returned a modest 3.2% in November, with the IT (10.6%) and Healthcare (8.8%) sectors posting the largest gains, while the Financials sector (-2.0%) lagged. Mid cap stocks returned 4.1%, outperforming large caps (3.3%) and small caps (1.6%) over the month. Australian Property Trusts (2.3%) outperformed Global Property Trusts (-0.9%) for the month.
The MSCI World ex-Australia Index (hedged into AUD) rose 3.2% over the month. In developed markets, New Zealand (9.4%) and Ireland (7.1%) outperformed the broader market, while Hong Kong (-1.6%) was unsurprisingly the poorest performer given ongoing social and political turmoil.
The MSCI Emerging Markets Index returned 1.7% for the month despite a number of countries lagging the broader market, most notably Chile (-3.7%) with the ongoing civil unrest related to economic and political reforms, and Columbia (-1.1%) where anti-government protests continue. Pakistan (11.0%) registered strong returns for November as banking stocks led the market higher, whilst Turkey (7.6%) also posted strong returns.
Australian dollar and bonds
The Australian Dollar finished the month lower against all the major developed market currencies, most notably the NZD (-1.9%), USD (-1.8%) and the Pound Sterling (-1.8%). Bond markets reflected the better sentiment as government bond yields rose (ie prices fell) and corporate bonds outperformed in November. The US 10-year yield finished the month up 9 basis points, at 1.78%. The Australian 10-year yield fell 11 basis points to 1.03%, and the UK 10-year gilt yield rose to finish at 0.70%.