Research Insights – Market Commentary November 2020

Positive trial data for three potential COVID-19 vaccines was a key catalyst for investment markets in November. Monthly gains during November were the largest since the late 1980’s with many indices posting new all-time highs. Whilst global cases of COVID-19 remain high at ~64 million cases with the US accounting for ~14 million of these, the mortality rate isn’t increasing at the same rate as new cases. Despite improved mortality rates and better treatment protocols for those with COVID-19 this doesn’t guarantee an unimpeded economic recovery. Lockdowns in some regions of Europe and the US will interrupt recovery and place further strain on some sectors of the economy such as the tourism and hospitality sectors.

In the US, President Trump hasn’t really conceded to losing the Presidency and still claims the result was rigged. However, Joe Biden has now been elected the 46th President of the United States. President-elect Biden will have a challenging environment to enact his legislative agenda, with Democrats appearing unlikely to gain control of the US Senate.

Australian iron ore exports reached record levels in November as Asian demand continues to respond to increased infrastructure spending and accelerating economic growth in the region. A buoyant outlook for the Australian economy, bolstered by confirmation that the outbreak of COVID-19 in Victoria is under control, helped underpin a strengthening Australian dollar which gained 4.7% versus the US Dollar in November to close at US$0.7357. This was despite the Reserve Bank of Australia (RBA) lowering the official cash rate to 0.10% from 0.25% earlier in the month.

The Australian equity market rose by just over 10% in November as investors were happy to buy some of the sectors/stocks that have been hardest hit in the downturn and take profits in some of the companies that have been beneficiaries of the uncertainty.  Sectors such as Energy (+29%), Financials (16%) and Industrials (+12%) were amongst the largest gainers during the month. Consumer staples (-2%) and Health Care (+2.5%) were the laggards. International equities rose by 11.5% on a currency-hedged basis while a higher AUD lessened the return slightly for unhedged investors to 7.4% for the month. The Dow Jones Industrial Average which tracks 30 large US listed companies hit a record high of over 30,000 index points in the month, while the broader S&P500 and the technology-heavy NASDAQ also hit record highs in November. Australian listed property delivered a 12.8% return as lockdowns eased and investors were willing to purchase office and retail property stocks that had been heavily sold off during the last nine months.

The Australian yield curve steepened in November due to investors adopting a more “risk on” approach to investment markets in response to an increasing probability that the Asian region (including Australia) is nearing the end of the pandemic. The 10-year government bond yield rose by 7bps to 0.90% whilst the 2-year government bond yield was flat at 0.11%. In the US the 10-year government bond fell by 3bps to close at 0.84% and the 2-year government bond yield was steady at 0.15%.

Benchmark Returns 30 November 2020

 

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