Monthly commentary

Markets remained volatile over November, rebounding strongly after three months of weakness.  Bonds posted particularly remarkable returns over the month, with some of the sharpest drops in many decades seen in long-term interest rates. The Bloomberg Global Aggregate Index (NZD Hedged) returned over 3.2%, the best monthly return since the early 1990’s.  The main factors behind the pricing of lower interest rates included weaker than expected CPI prints, optimism that key economies such as the US will avoid a recession, dovish US Federal Reserve (Fed) sentiment, and increased expectations for central banks to ease policy in 2024. Equity markets were also strong, with the MSCI ACWI Index (NZD Hedged) up 7.7%.  The NZD was up over 5.6% versus the USD so returns were not as impressive for unhedged investors, up 2.9% (MSCI ACWI NZD). 

Returns of this magnitude for both equities and bonds over the same month are incredibly rare and have typically occurred when markets first bounce back from large drawdowns - such as April 2009 (GFC) and April 2020 (Covid) – or with a game changing development like in November 2020 when the Covid vaccine was first announced.  The swift improvement in risk sentiment was driven by economic data releases suggesting inflation was continuing to fall towards target ranges, while labour market data and spending figures continued to hold up better than expected.  A number of bond markets around the world are now pricing for a number of interest rate cuts over 2024, some starting as early as the first quarter.

Given the sharp fall in interest rates, and improving sentiment towards global growth, the sectors that performed best were the more cyclical ones such as consumer discretionary, industrials, financials and materials.  Information technology topped them all however, and remains far-and-away the best performer year-to-date.  The US (+8.9%) and Japan (+8.5%) were the best performing regions in local currency terms, and emerging markets (+7.9%) and Japan (+8.5%) kept pace.  The UK was the weakest, returning +1.8%, while New Zealand and Australia were in the middle of the pack, up 5.3% and 4.5% respectively.