CIO Monthly View with Will Bartleet, CIO and multi-asset portfolio manager at Pacific Asset Management
Equity markets moved higher in November as investors were hopeful that the first phase of a trade deal between US and China would be signed imminently. It remains to be seen whether an agreement can be reached before the next round of tariffs are due to take effect on 15th December.
Members of the Federal Reserve reiterated that the three interest rate cuts from the US Federal Reserve this year are sufficient for America’s economic expansion to continue whilst in New Zealand, the Reserve Bank of New Zealand chose to hold interest rates, rather than cut as the market anticipated, providing another signal that the global easing of monetary policy is coming to an end, at least for now.
In the UK, the Monetary Policy Committee voted to keep interest rates on hold although Governor Mark Carney stated that the risks to the outlook are “skewed to the downside” and two members of the committee voted for a cut in rates. Meanwhile, campaigning for the general election gathered pace with the Conservative and Labour parties competing to spend their way to victory.
Global equities were led by US stock markets in November, despite near record valuations. Value stocks continued their recovery, with outperformance in most regions during the month. We continue to see considerable opportunities in the cheapest stocks within global markets, which are trading at valuation discounts to the broader market that haven’t been seen since the bubble in growth stocks in 1999.
Bond markets were mixed with government bond yields continuing to drift higher (and prices lower) after the extreme moves seen over the summer. Finally, within Diversifying Assets, Macro funds generated strong returns in November. Their focus on interest rates and foreign exchange make them natural diversifiers whilst the evolution in central banks’ policies provides a rich opportunity set for their strategy.
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