Economic Review

Global Equity Markets 
Global Shares continued their sharp recovery in November. Some early encouraging signs that inflation pressures are peaking and hopes that central banks could moderate the pace of interest rate rises are the key drivers for this share recovery. However, the tragic Ukraine conflict is still casting a shadow over global markets.

Wall Street’s share indexes made further strong gains in November. US shares rallied with signs that price pressures are moderating. US CPI annual inflation came in at 7.8% in the year to October which is well below the 9.1% peak set in June 2022. Business surveys also point to lower cost pressures with the recent slide in oil prices and shipping costs. Some comforting signals from the Federal Reserve (FED) of reducing the scale of further interest rate rises also favored share prices. Yet there are also concerning signs that US economic activity is slowing with softer consumer spending and housing data.

European share markets also continued their recovery despite concerns over energy supply with the Russia – Ukraine conflict and rising interest rates. Annual European inflation has moderated to 10.0% in the year to November compared to 10.6% in October. This has encouraged European shares on the hope that the European Central Bank (ECB) would scale back further interest rate increases.

Britain’s financial markets have calmed. The new UK Chancellor’s announcements of tax rises and reduced government spending in November as well as the Bank of England’s sharp 0.75 % interest rate rise to 3.0% appear to have stabilised financial markets. Britain’s annual inflation remains high at 11.1% in October.

Asian share markets drew comfort from their global counterparts as well as more positive local signals. The Chinese market surged with signs that China’s national government was moderating their strict “Zero Covid” strategy of lockdowns with virus outbreaks. However, this sharp Chinese share rally does come after dramatic declines over the past year with subdued economic activity and a fragile property sector. Other Asian markets generally posted strong gains in line with global share markets. Japanese shares made solid gains with the central bank maintaining their commitment to zero interest rates and continued buying of government bonds.

Table 1: Global share market performance – November 2022
US S&P 500 +5.5%
US Dow Jones +6.0%
Euro Stoxx 50 +9.6%
German DAX +8.6%
UK FTSE 100 +7.1%
Japan Nikkei 225 +1.4%
China Shanghai Composite +8.9%
Source: Factset, financial data and analytics, November 2022

Australian share market review
Australian shares delivered strong gains in November. The sharpest gain was in the Utilities sector given signs that inflation and interest rate pressures were moderating. The Resources sector also surged given the strong rally in iron ore and base metal prices on hopes that China’s economic growth should revive with a less restrictive Covid strategy. There were also solid gains for healthcare, industrials and real estate given lower bond yields.

The Australian Dollar (AUD) rose by 6.0% against the US Dollar (USD) during November to finish the month at USD 0.6780.

Table 2: Australian share market performance – November 2022
S&P/ASX 200 Accumulation Index +6.6%
S&P/ASX 200 Industrials Total Return Index +3.8%
S&P/ASX 200 Resources Total Return Index +14.6%
S&P/ASX Small Ordinaries Total Return Index +4.9%
S&P/ASX 200 A-REIT Total Return Index +5.8%
Source: Factset, financial data and analytics, November 2022

Large Caps (S&P/ASX100)
Resource stocks bounced back in November. Origin Energy (+41.1%) was the stand-out performer after its board indicated it would accept a proposal from Brookfield Asset Management and MidOcean Energy to acquire the company for $9.00 per share if the offer becomes binding. Next best was Fortescue Metals (+31.8%) and Evolution Mining (+29.3%). James Hardie Industries (-14.1%) was the worst performer after lowering earnings guidance on a less positive outlook for the housing market, followed by Lendlease Group (-12.4%) and Xero Limited (9.5%).

Listed property
The S&P/ASX 200 AREIT Total Return Index had another good month (+5.8%) in November, albeit below the 6.6% increase in the S&P/ASX 200 Total Return Index. Industrial AREITs (+12.1%) led the sector followed by Diversified AREITs (+5.5%), Office (+2.8%) and Retail AREITs (+2.7%)..

Written 3 December 2022.

Important Information
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