Equity markets continued to rally through November following a strong end to October, with notable gains in Europe and the US as the earnings season was ultimately better than previously feared. Trade talks followed a positive trajectory, with dialogue between the US and China constructive as negotiations over ‘phase one’ of a trade deal continued, providing support for equity markets.
November was a quiet month in terms of policy, with no Federal Reserve (Fed) or European Central Bank (ECB) meetings. Fed Chairman Powell stressed that ‘monetary policy is only likely to change if the outlook changes materially’ in his most recent speech, while in Europe, speeches from Christine Lagarde (the new ECB president) have so far proven light on any detail on future direction.
Despite global economic data being somewhat subdued, there were some bright spots that helped to buoy market sentiment. European manufacturing surveys did come in weaker than expected, but Euro area sentiment surveys pointed to an uptick, and manufacturing data in the US improved.
In the UK, campaigns kicked off for the 12 December election, with both the Conservatives and Labour promising large rounds of fiscal spending. Boris Johnson is campaigning on his renegotiated Brexit deal, while Labour would seek to renegotiate this deal and put it to a second public vote. Polls are generally indicating that a Tory majority is the most likely outcome, though investors are cautious on interpretation of such data, given the mixed record of such predictions in recent elections.
Emerging markets generally lagged developed markets in November, with Chinese data mixed as the most recent purchasing managers’ index (PMI) data pointed in different directions. October activity data also deteriorated further, exacerbating growth concerns.
In November, both our external US growth manager T Rowe Price and US value manager Barrow Hanley performed well in absolute and relative terms. Meanwhile, our European and emerging market strategies also saw good relative outperformance. We ended November at a discount of 1.4%, having averaged a discount of 2.6% over the month.
Despite the recent recovery, valuation metrics in a number of areas are still reasonable and, providing growth remains on a positive path globally, equity markets should be well supported. Nonetheless, the cycle is mature and the bull market in stocks is extended, with outlooks for global growth moderating. We expect that volatility will stay heightened in coming quarters and we continue to invest in a range of diversified underlying stock-selection strategies. We remain well placed to withstand any further short-term volatility in markets.
All information as at November 2019, unless stated otherwise.