Accommodative central banks and a bout of optimism in geopolitical events helped to boost equity markets in November, supporting the year to date performance. However the performance of the major indices can obscure sector and style rotation and a wide breadth of valuation intra market and throughout the differing regions.
Sterling has been focussed on the machinations and consequences of the polling data in the UK general election. In the end Sterling finished the month as it started at 1.29 (£ to US$), but strengthened 1% against the Euro to 1.17 (£ to €) and the Japanese Yen to 141.46 (£ to ¥). Where Sterling finishes the year will depend upon the election ‘winner’ and whether they can form a majority or minority government.
Within developed world markets, longer dated government bond yields have widened causing yield curves to steepen slightly as central banks restrain shorter dated rates. In the UK this has resulted in the FTSE Actuaries UK Conventional Gilts All Stocks index losing 0.8% in November and 2.1% since 31 August. The US 10 year government bond yield rose 0.1% to 1.79% and the German 10 year bond yield rose 0.05% to -0.35% by month end having reached -0.25% towards the start of the month.
Current valuations in the US market require a lot of optimism in future geo-political deals and corporate earnings growth to make sense relative to the rest of the world. Undeterred US market indices made new highs with the S&P 500 reaching 3,154 and rising 3.6% over the month, driven by the Information Technology, Healthcare and Financial sectors. Conversely markets in China, Hong Kong and South Korea fell resulting in the MSCI AC Asia Pacific ex Japan index growing by 1.0% and MSCI Emerging Markets rising 0.6% in November. The MSCI Emerging Markets index is up 8.8% over the past year and MSCI Japan is up 5.5% over the same period, underperforming MSCI World by 5.9% and 9.3% respectively. German companies are driving the European indices higher from the lows in the summer with the MSCI Europe ex UK index rising 1.5% (in Sterling terms) in the month. In the UK the FTSE All Share returned 2.2% over the month, driven by a strong rally in mid cap stocks, with the FTSE 250 (excluding Investment Trusts) index rising 4.38% in November. The FTSE 100 rose 1.8% in the month resulting in a 10.2% total return for the last year, 5.2% in capital terms.
With a backdrop of positive sentiment in markets and prospects for the global economy Brent Crude rose 3.0% prior to an OPEC meeting this week, with the spot price rising to $66 per barrel. With rising long term yields and optimism in markets it is unsurprising that Gold fell back 3.1% in month, resulting in a loss over the past 3 months of 9.4% in Sterling terms.
Chief Investment Officer