November 2020 Update

Global equity markets were extremely strong in November, with the Australian market delivering a record monthly return. Markets rose due to a coincident cluster of positive factors. This included a clear result in the US presidential election (with the likelihood that Democrat control would be tempered by a Republican-controlled Senate), continued explicit monetary support from the US Fed, news of successful COVID vaccines and China’s continued economic growth.

Locally, the easing of the COVID lockdowns in Victoria, supportive State budgets in NSW and Victoria and continued monetary support by the RBA provided an additional source of investor confidence. All up, this may be the largest group of positive impacts the equity market has ever experienced in a single month.

The A$/US$ rose 5% from $0.7044 to $0.7393, moderating the unhedged global equity return to 7.4%; but leaving hedged global equity returns at 11.6% for the month. Supporting the $A were stronger commodity prices, with iron ore up approximately 10% and oil prices surging 26%. However, coking coal (steelmaking) prices fell again, although the price of thermal (energy production) coal improved 15% after a poor 12 months.

Despite central banks continuing to emphasize their commitment to low-interest rates, there was minimal movement in longer-term bond yields, leaving fixed interest returns at low levels.

Despite a 6.1% rise, China was the lagging market in November, after outperforming in previous months. In an extraordinary month, most major share markets delivered double digit returns, with the Japanese market surging 15%. Some smaller “Emerging” equity markets were more than 20% higher.

The rise was also notably greater in stocks which are more exposed to economic growth rather than the Information Technology sector, which has driven market rallies since March.

This change marks a rotation by investors away from “Growth exposures to “Value” exposures. This rotation is in its early days but may mark a significant change in the drivers of market returns in the months ahead.

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