I have asked Russell Investments for a summary of global stockmarket performance in November and their commentary is below.
UK (all returns are in £ unless otherwise stated)
The FTSE All-Share Index gained 3.0% during November, reaching a new 14-month high, as commodity prices continued to rise. Investors’ confidence was further bolstered by ongoing merger and acquisition activity. Mining companies were the main drivers as a struggling US dollar and a surge in China’s factory output prompted investors to pour money into commodities. In particular, gold reached another new record amid a shift away from the greenback.
However, concerns over Dubai World’s debt highlighted the fragility of world markets after they sold-off heavily following the company’s announcement that it would delay repaying its debts.
Continental Europe (all returns are in € unless otherwise stated)
The MSCI Europe Index rose 1.1% in November, despite falling significantly during the last week of the month as news broke in the Middle East that the state-run investment company Dubai World was seeking to delay debt payments. This drove the financials sector lower as investors worried about the exposure companies may have to potentially bad debt.
The materials sector was by far the best-performer as commodity prices continued to rise due to a weakening US dollar and a surge in China’s factory output. Economic data was largely positive for the Eurozone in November. Most notably, data showed that the region’s gross domestic product grew between July and September, officially ending its first recession. Furthermore, inflation turned positive after seven months, relieving deflation fears.
US (all returns are in US$ unless otherwise stated)
The US equity markets advanced in November, with the Russell 1000 Index gaining 5.8%. There was very little dispersion in the performance of growth and value stocks. Larger cap companies with more sustainability and consistency around their revenue and earnings growth lead the gains during the month, but small cap stocks lagged their larger peers. Companies positioned to benefit from international growth and increased demand in commodities and natural resources were the leaders.
New data indicating a bottoming of the home price decline, improving retail sales, and auto manufacturing and sales growth, which has been largely driven by unprecedented global government stimulus spending, historically low interest rates, and stabilising financial systems all factored into the improving investor sentiment. Gains were also extended by a report stating manufacturing output in China rose at its fastest pace in five years, elevating earnings prospects for US exporters. Concerns over the debt crisis in Dubai eased losses during the latter part of the month as the United Arab Emirates (UAE) pledged to encourage Dubai’s banks to ease the region’s debt.
The sectors which most benefitted from these trends, and commensurately were the best performing sectors in November, were the materials and processing, producer durables, and health care. US manufacturing grew for a fourth consecutive month, helped by the resumption of global trade and an increase in output as companies replenished depleted stockpiles putting the industry at the forefront of the country’s recovery.
Japan (all returns are in Ұ unless otherwise stated)
Despite Japan releasing better-than-expected third quarter GDP results, the Topix Index retreated 6.1%. Equities tumbled on the back of global growth concerns and the Bank of Japan’s (BoJ) announcement that recovery remains weak as households continue to face a deteriorating labour market coupled with lower wage growth. The US dollar fell to a 14-year low against the yen amid speculation that interest rates in the US will remain low for sometime. The BoJ also kept interest rates at 0.1% even as the government published an official report pronouncing the economy is in a period of deflation for the first time since 2006.
However, earlier losses were pared back somewhat during the latter part of the month as the United Arab Emirates (UAE) pledged to encourage Dubai’s banks to ease the region’s debt. Japanese banks and building contractors rebounded after the UAE central bank eased restrictions on credit for lenders and promised it would stand behind foreign banks should they face losses from Dubai World’s possible defaults.
Asia-Pacific (all returns are in US$ unless otherwise stated)
The MSCI Asia Pacific ex Japan Index advanced 2.8% during November. Stocks rallied as the G20 agreed to maintain expansive fiscal and monetary policy in an effort to encourage a sustainable recovery, leading investors to raise their appetite for risk. India led the overall gains as its economy grew by 7.9% in the third quarter from a year earlier, beating forecasts as stimulus measures boosted demand and manufacturing activity surged. The recent economic revival lured greater foreign investment; pushing shares higher. Elsewhere, markets advanced as the Australian central bank stated the country had entered a new upswing and gold reached fresh high.
Equities experienced a volatile end to the month, but losses were pared back as the United Arab Emirates pledged to support the banking sector after Dubai World announced it was seeking to delay debt payments. At a sector level, Indian steel companies drove materials upwards on renewed merger and acquisitions activity. In contrast, Hong Kong real estate finished in negative territory after speculation its excessive growth would raise risks of an asset bubble within the region.
Emerging Markets (all returns are in US$ unless otherwise stated)
Emerging market (EM) equities endured a mixed end to the month before closing ahead, with the MSCI Emerging Markets Index gaining 4.3%. Stocks fell sharply during the latter half of the month after risk aversion increased following news of a debt crisis in Dubai, while there were also concerns over suggestions that Chinese banks planned to sell more shares to raise capital. The news from Dubai sent shockwaves through the Middle East and beyond, with Egyptian stocks plummeting to their steepest daily loss in over a year. The increase in risk aversion continued to weigh on Turkish equities as they again traded down as investors sought out less risky markets.
In China, stocks plunged in the third week of the month on concerns that banks needed to sell shares to replenish capital depleted by record loan growth. The index’s gains over the month were led by Latin American (LATAM) markets including Mexico, where employment increased for a fifth successive month and the government lauded “clear signs of economic recovery”, and natural resource dominated Peru and Brazil. LATAM markets advanced as metal prices rose after Asian leaders pledged to maintain stimulus measures until there is “durable” growth, while the US dollar’s continued weakness helped increase the appeal of hard assets. Gold and crude oil also advanced as the dollar fell and inventories declined. Oil is Colombia’s biggest export, and its advance - coupled with the central bank’s surprise decision to cut interest rates - helped the country’s equities to a solid gain over the month.
Investors should be aware that past performance is not a guide to future returns. The value of investments and the income from them can fall as well as rise and investors may get back less than the amount invested.
By Bill Blevins, Managing Director, Blevins Franks
7th December 2009
