In focus

Monthly markets review - November 2020

  • Global equities rallied strongly in November, mainly due to several vaccines proving effective against Covid-19. The improved risk appetite saw corporate bonds outperform government bonds. 
  • US equities surged as vaccine breakthroughs sparked investor optimism that a return to economic normality is in sight. Joe Biden won the presidential election.
  • In the eurozone, expectations of global recovery supported shares, with the region a particular beneficiary given its high exposure to global trade.
  • UK equities performed well, helping them to recoup some of their year-to-date underperformance versus other regions. Sentiment was also helped by hopes that a “no-deal” Brexit might be avoided.
  • The MSCI Asia ex Japan index recorded its highest return in more than four years. US dollar weakness amplified returns.
  • Japan’s equity market rallied, driven by vaccine-related news and the slow-motion results from the US presidential election.  
  • Emerging market equities registered a robust return. Value outperformed growth, while Latin America and emerging Europe outperformed emerging Asia. 
  • Government bond yields were volatile during the month, with large swings around the US election and vaccines news. Corporate and emerging markets bonds performed well. 
  • Commodities delivered a positive return, aided in part by a weaker US dollar. Energy was the best-performing component. 

Please note any past performance mentioned is not a guide to future performance and may not be repeated. The sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

US

US equities surged in November as several vaccine breakthroughs sparked investor optimism that a return to economic normality is in sight. The news eclipsed President-elect Joe Biden’s eventual victory in the US presidential election, and concerns over the smooth transition of power.

The most economically-sensitive areas of the US stock market rose the most sharply. Energy stocks were up markedly. Financials, industrials and materials also rose. The US dollar declined.

Eurozone

Eurozone shares surged in November with the MSCI EMU index gaining 17%. Positive news on vaccines supported shares, with the eurozone a particular beneficiary given the region’s high exposure to global trade.

There were also encouraging signs that Covid-19 infection rates are slowing in several European countries, enabling governments to start easing lockdown restrictions. Energy and financials were amongst the best-performing sectors.

UK

UK equities outperformed in November on the back of the positive vaccine news, helping them to recoup some of their year-to-date underperformance versus other regions.

Sentiment was also helped by hopes that a “no-deal” Brexit might be avoided. The standstill/transition arrangement within the EU-UK Withdrawal Agreement ends on 31 December 2020.

A notable rotation into value stocks prompted some debate as to whether the long-term dominance of so-called growth stocks may at last be challenged. Value stocks are those that appear to be trading for less than their intrinsic worth, while growth stocks are anticipated to grow at a rate significantly above the average for the market.

Asia (ex Japan)

The MSCI Asia ex Japan index recorded its highest return in more than four years as the news of vaccines boosted investor sentiment. US dollar weakness amplified returns. The ASEAN (Association of Southeast Asian Nations) markets of Thailand and Singapore led the index higher.

By contrast, China, which has outperformed significantly on a year-to-date basis, underperformed amid a rotation in market leadership. There was also rotation within the market, with internet stocks, which have outperformed year-to-date, dragging on market performance.

Japan

Japan’s equity market rallied in November, driven by vaccine-related news and the slow-motion results from the US presidential election.

However, the style reversal seen in most markets was very muted in Japan, with only a brief outperformance for value stocks, while small caps underperformed sharply.

In the near-term, the focus will be on the vaccine roll-out, Japan’s general election timetable and the scope for a full corporate earnings recovery. 

Emerging markets

Emerging market equities registered a robust return as vaccine news flow and the election of Joe Biden boosted risk appetite. Value outperformed the growth factor.

On a regional basis, Latin America and emerging Europe outperformed emerging Asia. Greece, Poland and Hungary were the best-performing index countries. Turkey outperformed as a new central bank governor and treasury and finance minister were appointed.

Global Bonds 

Government bond yields were volatile during the month. The US 10-year Treasury yield was three basis points (bps) lower at 0.84%, but saw large daily changes around the US election and news on vaccines.

In Europe, 10-year yields of Germany and France edged a little higher, to -0.57% and -0.33% respectively. Peripheral yields fell to low levels on news of vaccines and expectations that the European Central Bank could increase bond purchases. The Italian 10-year yield fell 13 bps to 0.63% and Spain’s fell 5 bps to 0.08%.

Corporate bonds performed well, with global investment grade producing a total return of 2.1% and high yield 4.1% (Source: ICE BofAML, local currency total returns). Investment grade bonds are the highest quality bonds as determined by a credit rating agency; high yield bonds are more speculative, with a credit rating below investment grade.

Emerging market hard currency bonds gained 3.9%, with corporate bonds rising 2.7%, both led by high yield. Local currency bonds returned 5.5%. EM currencies performed well against the US dollar, notably in Latin America (Source: JP Morgan).

Convertible bonds benefited from the tailwind of strong equity performance. The Thomson Reuters Global Focus index, which measures balanced convertible bonds, advanced 6.5%. Convertible bonds were highly sought after and valuations became more expensive.

Commodities

In commodities, the S&P GSCI Index delivered a positive return, aided in part by a weaker US dollar. Energy was the best-performing component, with strong gains for Brent crude as vaccine optimism boosted hopes for a sustained recovery in economic activity and energy demand. Industrial metals also posted a double-digit gain, driven by robust returns from lead, copper and aluminium.

Conversely, precious metals was the only component to record a negative return, as investor demand for safe-haven assets waned. Gold and silver fell. The agriculture and livestock components also underperformed, despite finishing in positive territory.

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

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This article is issued by Schroder Wealth Management (US) Limited, a firm authorised and regulated by the Financial Conduct Authority and registered as an investment adviser with the US Securities and Exchange Commission. Registered office at 1 London Wall Place, London EC2Y 5AU. Registered number 10761882 England. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. Exchange rate changes may cause the value of any overseas investments to rise or fall. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Schroder Wealth Management (US) Limited unless otherwise stated. For your security, communications may be recorded and monitored.

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Martin Heale

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Janette Saxer

Janette Saxer

Portfolio Director
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