November’s investment market commentary

November looked like it was going to be another positive month for risk assets, but it all changed in the final week with the discovery of the Omicron variant of COVID-19. The significant number of mutations seen in this new variant translated into heightened concern regarding its transmissibility, virulence, and its ability to evade current vaccines than other previous variants. While information regarding these areas of concern was very limited, anecdotal at best, the increased uncertainty put all risk assets under substantial pressure. Essentially, we saw a classic “flight to safety” with falling equity markets resulting in a sharp rally in government bonds.

Global equity markets were overall negative (-1.7%), with emerging market equities (-3.2%) lagging developed markets due to fears over the impact of Omicron on economic activity. In terms of style, growth stocks (-1.1%) outperformed the more value / cyclically (-3.8%) orientated equities. This was also reflected in sector performance with Information Technology stocks the only positive area, as these stocks benefited from more people potentially working from home, while more economically exposed Financials and Energy sectors lagged.

Global equity markets were positive (+5.0%), with emerging market equities (+0.9%) lagging developed markets due to contagion fears from the Evergrande saga. In terms of style, growth stocks (+6.1%) outperformed the more value orientated equities (+4.1%) . This was also reflected in sector performance with consumer discretionary and information technology among the best performing areas, while more defensive and, to some extent, more interest rate sensitive utilities and consumer staples lagged.

Within fixed income markets, concerns over Omicron meant investors moved into “safe haven” government bonds, with the expectation that the new variant would reduce the likelihood of any imminent rate hikes from central banks. Looking at the detail, higher quality global government bonds (+1.1%) and global investment grade credit (+0.2%) generated a positive return over the month, while at the risker end of the spectrum global high yield (-1.0%) and emerging market hard currency debt (-1.4%) both declined.

In terms of real assets, property markets generated an equity-like return over the month with the global REITs index down -2.2% over the period. Commodities were down sharply, led mainly by crude oil (-19.1%) with oil demand seen as being under renewed risk due to the emergence of the Omicron variant.

This month’s values quoted as at 30/11/2021. The above values are sourced from Bloomberg and are quoted in the relevant currency.