An early Christmas

November was a strong month for asset prices with both shares and bonds rallying. Signs of slowing inflation pressures mean global central banks are likely to slow their pace of hiking, giving investors potential relief from the relentless rise in interest rates this year. The broad rally helped deliver solid Fund returns for the second month in a row.

Whilst performance last month was broad based, there was notable outperformance of non-US share markets. Australia’s ASX200 index was up over 7% for the second month in a row, putting the index in positive territory for the year, and boosting Fund performance given our large allocation to this market which we consider as ‘home’. NZ shares underperformed owing to the 75 basis point hike by the RBNZ. But there was a notable performance from long-time favourite small cap Gentrack, up 56% on strong earnings.
Last month saw strong performances from stock picks in all regions. In Australia, our patience in Origin Energy was rewarded with a takeover offer that sent the stock up 41%. Patience in Virgin Money also paid off as a good earnings report sent the stock up 26%. In global stocks, integrated circuit maker Analog Devices was up 21% and we were pleased when new pick Ameren Corp (a US utility company) returned 10%.

The strong performance from share markets over the past two months leaves us more cautious on the outlook. Valuations are elevated in the face of falling profit expectations and the prospect of potential recession, both locally and globally. Whilst slowing inflation is a welcome development, this comes alongside fears that after a year of rising interest rates and high inflation, 2023 could see a material weakening in economies.

This caution is reflected in our positioning, we have reduced exposure to shares but have been adding to corporate bonds to harvest the attractive yields on offer. Cash also offers a reasonable return whilst we wait for better opportunities to emerge. We are confident that our flexible approach can continue to serve us well, as markets look likely to remain volatile going forward.