Market update - November 2017

Global economic conditions continued to improve in November. Geopolitical risks were elevated over the month with North Korea conducting further missile tests, Venezuela defaulting on their foreign debt and a corruption crackdown sweeping across Saudi Arabia. Political risks increased across Europe as German Chancellor Angela Merkel’s plans to form a four-party government fails, while a growing portion of the UK Conservative Party lost confidence in Prime Minister Theresa May as progress on Brexit negotiations were scant. Despite weak economic growth in the UK, the Bank of England raised interest rates for the first time in 10 years, from 0.25% to 0.5%, citing higher inflation and a low unemployment rate, with the latter falling to a 42-year low.

In the US Jerome Powell will be replacing Janet Yellen as the Chair of the US Federal Reserve (Fed), with the transition expected to occur in February 2018. Powell is expected to provide continuity to the Fed’s ongoing monetary tightening plans, while differing to Yellen in his support to potentially lighten regulations on the financial sector.

In Australia, Reserve Bank of Australia (RBA) deputy governor Guy Debelle expressed growing confidence that non-mining business investments have been rising and expects Australia to join the synchronised pickup of global growth. However, wage growth remains subdued at 2% for the September quarter (year-on-year), despite achieving a 5-year low unemployment rate of 5.4%. Organisation for Economic Co-operation and Development (OECD) urged Australia to begin increasing official interest rates, despite persistently weak inflation, to cool the housing market and prevent a blowout in risky debt levels.

The investment returns of the major markets for one month, one quarter, financial year to date and one year to 30 November 2017 are summarised below.

Market Performance - 30 November 2017 Month Quarter FYTD 1 Year
Australian Equities 1.7% 5.8% 6.6% 14.17%
Australian Property (Unlisted)* 0.6% 2.9% 3.8% 12.2%
Australian Property (Listed) 5.3% 8.3% 9.7% 13.5%
Global Listed Property (Heged into AUD) 2.5% 2.7% 4.0% 12.0%
Overseas Equities (Hedged into AUD) 1.7% 7.1% 9.1% 22.8%
Overseas Equities (Unhedged into AUD) 3.3% 11.5% 10.6% 21.2%
Emerging Markets (Unhedged into AUD) 1.2% 8.0% 13.2% 29.7%
Australian Bonds 0.9% 1.7% 1.9% 4.0%
Overseas Bonds (Hedged into AUD) 0.2% 0.2% 1.5% 3.8%
Cash 0.1% 0.4% 0.7% 1.8%
Australian Dollar vs. US Dollar -1.0% -4.3% -1.0% 2.7%

Source – JANA, FactSet, S&P, MSCI, Mercer, Bloomberg, Barclays

The Australian shares market as represented by the S&P/ASX300 Accumulation Index rose 1.7% over the month. Small Cap stocks (+3.9%) strongly outperformed the broader market. Property Trusts (+5.3%), IT (+4.5%) and Energy (+4.3%) outperformed, while Telecommunication Services (-1.6%) and Financials (0.0%) were the worst performing sectors.

The MSCI World Index ex-Australia (hedged into AUD) rose 1.7% over the month. The Australian dollar depreciated against most developed market currencies in November, which resulted in a return for unhedged overseas equities of 3.3% when measured in AUD. In developed markets, Hong Kong (+3.5%) and the US (+3.0%) outperformed the broader market, while France (-2.0%) and the UK (-1.8%) underperformed. The MSCI Emerging Markets Index (1.2%) underperformed unhedged developed markets.

The Australian and global bonds delivered positive returns over the month and all other periods observed above.