Market Data – November 2024

Market Returns - 1 Month to 30 November 2024 (in AUD)

Market Commentary

November 2024 saw markets respond to the U.S. presidential election results and subsequent policy signals, triggering volatility across global markets. Markets initially saw a sharp rally amongst U.S. equities, particularly within small-cap stocks and other domestic policy-sensitive sectors – though this enthusiasm waned as investors reassessed the broader implications of potential policy changes.

U.S. markets demonstrated resilience despite rising economic and trade policy uncertainties, with major indices hitting record highs before pulling back. The earnings season revealed a notable divergence, with firms generating over 50% of sales outside the U.S. reporting strong earnings growth at 12.9% compared to just 1.5% for domestically oriented firms. This paradox emerged against the backdrop of Trump's "America First" agenda and trade policies.

Globally, European equities struggled amid political uncertainty, weak economic data and the looming threat of U.S. tariffs. The Euro fell over 2% against the U.S. dollar, at one stage reaching a two-year low of 1.03. Japan's Yen rallied in late November, despite Tokyo’s higher-than-expected year-on-year inflation rate of 2.6%. The Bank of Japan (BOJ) responded by signalling a potential rate hike, with markets anticipating a 15-25 basis point hike before year-end.

In Australia, the RBA maintained a cautious stance on rate cuts, with NAB suggesting possible delays until May 2025 if unemployment remains sticky around 4%. The Australian dollar showed initial strength against the U.S. dollar before falling on global trade concerns.

Looking ahead, markets remain focused on developments amongst U.S. trade policies, central bank responses to inflation pressures, and diverging global growth trajectories. While U.S. economic data remains robust, the threat of trade tensions and geopolitical risks suggests continued market volatility into year-end. 

Australian Equities

The ASX 200 rose 3.8% in November buoyed by a decisive Republican victory in the US election. While the Trump victory helped equity markets surge on the prospects of continued resilient growth and potentially more policy stimulus (deregulation & tax cuts), the policy updates from China to support its domestic economy were once again, underwhelming.

The impact of the sharply different outlooks for the US and China was stark in terms of overall equity market price performance in November, in which Growth stocks overwhelmingly outperformed Value stocks.

Metcash is contending with several challenges that weigh on its near-term performance and growth prospects, particularly in its hardware division. Declining activity across the housing construction pipeline, persistent margin pressures, and subdues trade activity have affected results. Despite cost-cutting efforts, fixed cost leverage remains a challenge, with labour and overhead costs outpacing sales growth. The discretionary nature of Total Tools, a major component of the hardware segment, heightens vulnerability to macroeconomic cycles. Furthermore, the illicit tobacco trade continues to impact independent retailers, with regulatory progress slow and outcomes uncertain. 

Defensive Income

November's performance in fixed income was a positive bounce-off weakness seen in October. The domestic ACGB 10y yield fell to 4.3%, down c.17bps on the month. The extent of the move was the similar in the US, falling 11bps to 4.2%. Domestic credit spreads marginally widened month-on-month, with the AusBond Credit FRN OAS 3bps wider at 68bps, but the AusBond Credit BBB- to BBB+ OAS was flat at 130bps. Our 5y constant tenor Big Four Tier 2 FRN spread widened 5bps to 152bps. In the US, high yield spreads rallied hard, compressing 40bps to 295bps on the CDX HY 5y spread.

Prime returned 0.69% in November, which was another strong month for 2024, driven by contributions across all underlying assets other than two out of the three AT1 hybrids (MQGPF, and WBCPM). The Portfolio has produced returns of +7.36% for the past year and 6.67% p.a. over the last 24 months, with just one negative month (-0.03%) in that span. At the 1- and 2-year markers, Prime is ahead of the Bank Bill Index by 2.91% and 2.57% per annum, respectively. This excellent performance has been achieved while maintaining consistently low exposure to interest risk (~1.5y duration) and high credit quality (A- portfolio average credit rating).

The top performers for the Portfolio were Pimco Global Bond Fund (+1.53%) and Pendal Government Bond Fund (+1.23%), reflecting strong offshore and domestic duration performance. This contributed a weighted return of 0.19% and 0.09% for the portfolio. WBCPM and MQGPF were the worst performing, as AT1 spreads widened following a strong 12 months. However, the impact of this on the portfolio was minor, cummatively combining to detract c.-5bp, as a function of the relatively small portfolio weight.

International Equities

The Prime International Growth Portfolio returned 3.8% in November, a month marked by significant market volatility following Donald Trump's unexpected election victory and subsequent policy announcements.

The Munro Concentrated Global Growth Fund was the standout performer, returning 7.2% and making the largest positive contribution to portfolio performance. The fund's strong performance came from its exposure to large tech companies within the "MAG7" group, which showed resilience amid market uncertainty.

European and emerging market exposures weighed on performance. The iShares Europe ETF (-2.1%) and Trinetra Emerging Markets Growth Fund (-2.9%) were the poorest performers, reflecting concerns over potential U.S. tariffs and trade restrictions under Trump's "America First" agenda. This was particularly evident as Trump threatened 100% tariffs on BRIC nations later in the month.

The portfolio's largest position, iShares S&P 500 ETF, returned 4.9%, supported by optimism around potential pro-growth policies but tempered by uncertainty around trade policy implications. The Langdon Global Smaller Companies Fund (+4.1%) also performed well, benefiting from the strong performance of domestic-focused companies amid the "America First" rhetoric.

Looking ahead, the portfolio's focus on attractive company valuations and broad diversification across regions and styles provides resilience against ongoing market uncertainty and U.S. trade policy developments.

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