Global equity markets rallied hard in November (MSCI World +9.4% MoM), reversing losses compounded over the three prior months. The prospect of global central banks keeping rates “higher-for-longer” had been the key headwind to markets in the months leading up to November, when softer messaging from the US Federal Reserve (Fed) and the most recent US inflation data convinced most investors that they had become too pessimistic about the longevity of restrictive monetary policy. The softer messaging from the US Fed came at its 1 November meeting, where Fed Chair Jerome Powell announced that rates would not be hiked for the second consecutive meeting and that future decisions would be data-dependent. The subsequent release of US inflation data showed prices cooling more than anticipated. US headline inflation for October (3.2% YoY) was well off its 2022 peak (9.2% YoY) and meaningfully closer to the Fed’s 2% target.
Emerging markets (EMs) were again held back by Chinese equities, which barely participated in the November rally. China remained one of the only major geographic regions to enter December with benchmarks still lower YTD for both its domestic and foreign-listed companies (Shanghai Composite -1.8%, Hang Seng Chinese Enterprises -4.6% and Nasdaq Golden Dragons -1.5% YTD in US dollar terms). The world’s second-largest economy is still struggling to digest the challenges in its real estate sector, which continue to weigh on consumer sentiment. The latest leveraged Chinese corporate in the spotlight, Zhongzhi Enterprise Group (one of the largest privately-owned financial conglomerates), faces criminal probes.
While most equity sectors rallied in November, the energy sector experienced share price declines, dragged lower by energy prices. Brent crude oil (-5.2% MoM) was a victim of pessimism around Chinese economic activity, as falling refining margins and rising stockpiles for the world’s largest oil importer weighed on demand expectations. Falling global yields and rising investor sentiment were a headwind for the US dollar, which was weaker against most major currencies in November (US Dollar Index -3% MoM).