Market update - November 2016

Donald Trump’s victory in the 2016 US Presidential election on 8 November was a key point of interest for global markets. Trump’s leadership is expected to be focused on issues such as US trade protectionism, a stronger US inflation outlook and a higher US fiscal deficit.  Towards the end of the month, the result of the US Presidential election caused a divergence across different asset classes and polarisation between developed and emerging markets, with the former outperforming the latter.

US equities trended lower during the days leading up to the US Presidential election as investors became increasingly concerned about the possibility of a Trump victory. However, as Trump’s win became more evident, the risk-off sentiment reversed into a surprise equity rally led by the Financial and Materials sectors. This rally was supported by Trump’s proposed reflationary policies, which include tax cuts, increased infrastructure spending and deregulation of the Financial sector. As a result, all major US indexes ended the month higher.

Equity markets in Australia ended the month higher and saw similar movements, predominantly driven by the US Presidential election outcome. The greatest benefactors in the Australian market were blue-chip firms from the Financial and Material sector with exposures to the US market. These stocks performed strongly over the month as earnings forecasts were revised upwards supported by tailwinds such as greater US infrastructure spending, a rise in commodity prices and increasing interest rates.

The Japanese Yen, viewed as a safe haven currency, strengthened initially prior to the US Presidential Election due to increasing global uncertainty. This trend reversed on election day and the Yen depreciated by 7.3% against the USD by the end of November. The Yen’s depreciation was a favorable outcome for the Bank of Japan and this supported the increase in competitiveness of Japanese exporters. As a result, the Nikkei Index rose by 12.7% from election day until the end of the month.

Emerging markets equities and bonds performed negatively due to concerns around Trump’s proposed trade protectionism policies and liquidity fears rooting from rising bond yields. This resulted in the depreciation of most emerging market currencies against the USD over the month.

The S&P/ASX300 Accumulation Index rose 2.8% in November. Small Cap stocks fell 1.2% for the month, while Large Caps stocks (3.6%) outperformed the broader market. Financials (6.0%), Utilities (3.7%) and Energy (3.3%) stocks outperformed, while Healthcare (-1.6%) and Telecommunication Services (-0.4%) were the worst performing sectors.

The MSCI World ex-Australia Index (hedged into AUD) rose 2.9% over the month. The Australian Dollar depreciated against most developed market currencies in November, which resulted in a return for unhedged overseas equities of 4.6% (in AUD). In developed markets, Japan (5.8%) and Singapore (5.9%) outperformed the broader market, while Spain (-5.4%) and Denmark (-4.2%) underperformed. The MSCI Emerging Markets Index (-1.7%) underperformed unhedged developed markets.

The yield on 10-year Australian Government bonds rose from 2.3% to 2.7% over the month. Elsewhere in the world, the US, New Zealand, UK, Euro and Japanese 10-year Government bond yields all rose. Long duration bonds and inflation-linked bonds underperformed the wider market. 

The monthly, quarterly and financial-year-to-date returns of the major markets to 31 November 2016 are summarised below.

Market Performance - 30 November 2016 Month Quarter FYTD
Australian Equities 2.8% 1.1% 5.8%
Australian Property (Unlisted)* 0.5% 2.7% 3.6%
Australian Property (Listed) 0.7% -11.0% -8.8%
Overseas Equities (Hedged into AUD) 2.8% 2.7% 7.7%
Overseas Equities (Unhedged into AUD) 4.6% 1.8% 5.3%
Emerging Markets (Unhedged into AUD) -1.7% -1.4% 5.2%
Australian Bonds -1.4% -2.9% -1.8%
Overseas Bonds (Hedged into AUD) -1.6% -2.4% -1.7%
Cash 0.1% 0.4% 0.8%
Australian Dollar vs. US Dollar -2.9% -1.7% -0.8%

Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
*Estimate at 09/12/2016