Economic Review
Global Equity Markets
During November there was further evidence of inflation easing across the world, making it more likely that the next move for central bank interest rates is down, not up. German CPI gains slowed to +2.3% in November, while Spain’s inflation rate fell to an annualised rate of +3.2%, both below expectations.
Global equity markets gained in November, rebounding from October lows. Developed markets outperformed emerging market counterparts returning 4.4% (MSCI World Ex-Australia Index (AUD)) versus a 3.1% return according to the MSCI Emerging Markets Index (AUD).
US markets gained. The S&P500 finished up 9.1% and the Nasdaq up 10.8% (in local currency terms) as the Federal Reserve shows signs of ending rate hikes.
European markets also gained on easing inflation data, the DAX gaining 9.5% (in local currency terms) over the month.
Chinese markets performed poorly, as China’s economy continues to contract, and artificially lowered iron ore prices fail to bolster the economy. The Hang Seng Index and CSI 300 Index lost -0.2% and -2.1% for the month (in local currency terms), as China’s largest property giant EverGrande continues to face collapse, dragging the Real estate Sector lower in China.
The Hamas/Israel war in Palestine entered its second month and combined with the ongoing Russia-Ukraine war provides significant headwinds for the global economy. Aside from the catastrophic human toll, these wars could affect the US and European economies via lower regional trade, tighter financial conditions, higher energy prices and lower consumer confidence.
Table 1: Global share market performance – November 2023
US S&P 500 +9.1%
US Dow Jones +8.0%
Euro Stoxx 50 +6.5%
German DAX +11.6%
UK FTSE 100 +2.5%
Japan Nikkei 225 +6.0%
China Shanghai Composite -2.1%
Source: Factset, financial data and analytics, November 2023
Australian share market review
AThe ASX 200 was up 5.0% for the month of November, halting the three-month slide in returns. Eight of 11 sectors finished positively; the three strongest being Health Care (+11.7%), Property (+11.0%), and Information Technology (I.T.) (+7.4%), while Energy (-7.4%) and Utilities (-6.0%) were laggards. The month began with a rate hike by the RBA and fears of further increases; however, markets were supported by indications of inflation slowing at a decent pace, finishing the month with the strongest return for the index since January. The Health Care sector was driven by a strong month for three major constituents;
CSL, ResMed and Cochlear. Meanwhile, despite the RBA’s decision early in the month, the rate-sensitive Property and I.T. sectors were the beneficiaries of the ease in inflation as investors piled back into those sectors. Energy stocks were hit by the significant drop in oil prices over the month, partly due to the Chinese economy continuing its struggles. Meanwhile, Utilities were impacted, predominantly, by one stock; Origin Energy, as the unpredictable takeover bid of the company saw its shares fall almost 10%. In all, the ASX 200 finished November by clawing back some of the losses seen in the previous three months.
The RBA raised the cash rate by 0.25% to 4.35% on Melbourne Cup Day, the first rate hike under new governor Michele Bullock. The tone of commentary accompanying the bank’s decision suggested a lower chance of further monetary tightening and investment markets are now pricing in a 20% chance of rate cuts by the end of 2024.
October’s inflation indicator came in at 4.9%, with the most significant rises coming from housing, food and transport. 3Q23 GDP fell short of expectations, growing only +o.2% over the June quarter (compared to +o.4% forecast). In annual terms GDP expanded 2.1%, in line with the prior quarter and ahead of market expectations of 1.8%.
Westpac-Melbourne Institute Index of Consumer Sentiment fell 2.6% to 79.9 in November, returning to deeply pessimistic levels as the RBA’s rate rise has put renewed pressure on family finances. Retail sales fell 0.2% in October, the first decline since June as consumers pulled back on some discretionary spending and awaited Black Friday sales. In contrast, annual sales increased 1.2%. The unemployment rate increased to 3.7% in October, aligning with the market expectations. The Wage price index grew 1.3% in quarterly terms in the third quarter, meeting expectations. The reading was the highest quarterly growth in the 26-year history of the index. On an annual basis, growth rose to 4% vs 3.6% rise last quarter.
Composite PMI fell again in November to 46.2, largely driven by a sharp decline in services output. The NAB business confidence index fell to -2 in October with falls in most industries. The trade surplus came in at $7.13billion in October, below market forecasts of $7.5 billion.
Table 2: Australian share market performance – November 2023
S&P/ASX 200 Accumulation Index +3.6%
S&P/ASX 200 Industrials Total Return Index +5.5%
S&P/ASX 200 Resources Total Return Index +0.6%
S&P/ASX Small Ordinaries Total Return Index +5.9%
S&P/ASX 200 A-REIT Total Return Index +8.9%
Source: Factset, financial data and analytics, November 2023
S&P/ASX 200 performance for the month of November 2023
- Best performers
– Block Inc +58.77%
– Neuren Pharmaceuticals Ltd +44.59%
– IRESS Ltd +40.88
– Cromwell Property Group + 37.50%
– Elders Ltd +27.95% - Worst performers
– Core Lithium Ltd – 22.22%
– Karoon Energy Ltd -19.45%
– Chalice Mining Ltd -15.08%
– Liontown Resources Ltd -14.6%
– AGL Energy Ltd -12.28%
Property
The S&P/ASX. 200 A-REIT Accumulation index advanced during November, with the index finishing the month 11.0% higher. Global real estate equities (represented by the FTSE EPRA/NAREIT Developed Ex Australia Index (AUD Hedged)) also finished strongly, advancing 9.0% for the month. Australian infrastructure also performed well during November, with the S&P/ASX Infrastructure Index TR advancing 1.6% for the month and up 6.6% YTD.
November was relatively muted on the M&A front across the A-REIT sector. Some activity included Centuria Capital Group (ASX: CNI) announcing the acquisition of an industrial facility for $71mn. Ingenia Communities Group (ASX: INA) secured a deal to acquire six seniors’ rental villages in Western Australia for $44mn. Additionally, the CEO of Ingenia, Simon Owen, has announced his intention to step down from the role. Owen will continue as CEO until a successor is appointed.
The Australian residential property market experienced an increase by +-0.6% Month on Month (as represented by CoreLogic’s five capital city aggregate). Perth was the biggest riser (+1.9%), followed by Brisbane (+1.3%) and Adelaide (+1.2%). In contrast, Melbourne (-0.1%) was the only city to deliver negative returns in November.
Written 15 December 2023.
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