Investment update for November 2016
Global markets anticipate and respond to US Presidential election
Donald Trump’s victory in the 2016 US Presidential election was a key point of interest for global markets in November. Trump’s leadership is expected to be focussed on issues such as US protectionism, a stronger US inflation outlook and a higher US fiscal deficit. Towards the end of the month, the US Presidential election result caused a divergence across different asset classes and polarisation between developed and emerging markets, with the developed markets outperforming.
The MSCI World ex-Australia Index (hedged into AUD) rose 2.9% over the month. Japan (5.8%) and Singapore (5.9%) outperformed in developed markets, while Spain (-5.4%) and Denmark (-4.2%) underperformed. The MSCI Emerging Markets Index (-1.7%) underperformed unhedged developed markets.
As Trump’s win in US Presidential election became evident, the risk-off sentiment—which had seen US equities trend lower during the lead up—reversed into a surprise equity rally led by the Financial and Material sectors. All major US indexes ended the month higher, in a rally supported by Trump’s proposed reflationary policies, including tax cuts, increased infrastructure spending and deregulation of the financial sector.
The Japanese Yen, viewed as a safe haven currency, strengthened due to increasing global uncertainty prior to the US election, and then depreciated. It was down 7.3% against the USD by the end of November. This was a favourable outcome for the Bank of Japan that increased the competitiveness of Japanese exporters. The Nikkei Index rose by 12.7% between US election day and the end of the month.
Equity markets in Australia were also predominantly driven by the US Presidential election outcome. The S&P/ASX300 Accumulation Index rose 2.8% in November. Blue-chip stocks from the Financial and Material sector with exposures to the US market performed strongly over the month as earnings forecasts were revised upwards supported by tailwinds such as higher commodity prices and interest rates, and greater US infrastructure spending.
The Australian dollar depreciated in November against the USD (2.9%). This resulted in a gain to international equities of 4.6% on an unhedged basis.
The Australian dollar was trading at US$0.7474 as at 30 November 2016.
Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays
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