November 2022 Market Insights
All developed markets rallied as investors took warmly to China potentially opening its economy after 3 years of coronavirus lockdowns and its zero-tolerance policy.
Written by Kevin Hua Co-founder & Chief Investment Officer
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What happened to the markets in November?
All developed markets rallied as investors took warmly to China potentially opening its economy after 3 years of coronavirus lockdowns and its zero-tolerance policy.
Hong Kong markets surged after months of underperformance with the HSI and HSCEI Indices, up +29.62% and +29.07% respectively (local prices). China’s Shanghai Composite Index was also +8.91% up (local price).
No major developed market indices were in the negative. However, the AUD rallied +5.73% versus the USD, thereby dampening AUD returns of the markets and Trends. This saw the major U.S. indices all in negative territory in AUD terms.
U.S. markets rise as inflation slows
U.S. stocks performed positively as inflation slowed driving hopes that the U.S. Federal Reserve will slow down its aggressive tightening policy on interest rates. After 4 months of 0.75% rises, it is expected to have a 0.50% rise in December.
Nonetheless, the Chair, Jerome Powell still believes interest rates will go higher (perhaps as high as 5% to 5.25%) than earlier projected as it continues to curb inflation towards its 2% target.
Meanwhile, Republicans won a narrow House of Representatives majority that gives them the power to halt President Joe Biden’s agenda. However, their slim margin and inability to regain the Senate majority marked a significant letdown for a party that had counted on decisive election results as it prepares for the 2024 presidential race.
A similar story in Europe as inflation slows
European markets also had a strong month, as regional investors reacted to slowing inflation data fueling investor hopes that record-high price growth across the European region has peaked and the European Central Bank will begin slowing its interest rate hikes next month.
Chinese markets surge as hopes for a re-opening of the economy rise
Risk assets rallied last month on hopes that China would take concrete steps toward reopening as investors bought stocks that underperformed over the last 12 months. Although China’s top leaders reinforced the need to stick with its Covid Zero policy, it urged officials to be more ‘targeted’ with their restrictions.
In addition, China issued sweeping relaxation measures on property and coronavirus controls, its strongest signal yet that the government is focused on economic growth.
The government unveiled an extensive 16-point rescue package for the struggling real estate market and 20 measures to guide officials as it eases its Covid Zero policy. This included bolstering vaccination rates among its senior citizens.
The economic outlook for Australia
The market finished up 6% in November (the second month in a row of positive returns for the Australian market). All sectors rose. Despite this, broader economic data in Australia continue to highlight the slowdown of the economy as recent weakness in consumer confidence translated into a decline in retail sales.
House prices also declined further in Australia, with Core Logic house prices falling by 1.1% in November, and the cumulative six-month decline in house prices reaching 7.2% . This is partially explained by the rise in interest rates and the dominance of variable home loan rates in the Australian market.
At the time of writing the Royal Bank of Australia had just increased its cash rate to 3.1%, to tackle inflation which they still deem as 'too high', at 6.9% over the year to October. "High inflation damages our economy and makes life more difficult for people." The labour market remains very tight, with many firms having difficulty hiring workers.
But in good news, the OECD's economic outlook for Australia predicts a growth of 1.9%. Not great, but better than nothing.