The stock markets were volatile in November, fuelled by continued slow global growth in the Eurozone and Japan, falling iron ore and oil prices, and ongoing geopolitical concerns in Syria, Iraq and Ukraine. The Eurozone saw its annual inflation rate fall to 0.3 per cent in November from 0.4 per cent in October. This puts greater pressure on the European Central Bank to follow the lead of the Bank of Japan and the US Federal Reserve and launch a large-scale quantitative easing program. The oil price has continued its fall which has seen Brent Crude fall from around $115/bbl in June 2014 to approximately $70/bbl at the end of November. Iron ore has also experienced further large falls, losing 11% in the month of November; now having fallen to around 50% of its value since the beginning of the year. While geopolitical risks subsided marginally in November, tensions between Ukraine and Russia have recently escalated again with reports that fighting had returned to peak levels.
The investment returns of the major markets for one and three months to 30 November 2014 are summarised below.
*Estimate at 4/12/2014
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
The global stock markets as represented by the MSCI World ex-Australia Index (hedged into AUD) appreciated 3.4% over the month. The Australian Dollar depreciated against most major developed world currencies, this resulted in a stronger return of 5.4% (in AUD) on an unhedged basis. Across developed markets, the strongest performing regions were Germany, Belgium and Japan. The weakest performing regions were Norway, Portugal and Australia. Emerging markets (unhedged in AUD) lagged developed markets.
The Australian stock market as measured by the S&P/ASX300 Index wiped off most of the gains made in October, contracting 3.2% in November. The biggest drag to performance was domestic Consumer Staples and Resources with the ASX All Resources Index declining 9% over the month. Large Caps and Small Caps both recorded a negative month. From a sector perspective, Telecoms and Health Care advanced while Materials and Energy struggled on the back of continuing weak oil prices and mixed performance from commodities.
Over the month, the Australian Bonds and overseas Bonds (hedged into AUD) provided strong returns.