Following a strong correction in October, mixed performance for global equities in November

European equities: Underperformance vs global equities

US equities: A more dovish Fed

US equities bounced back towards the end of November to outperform developed markets. For the first time in the current rate cycle, the FED turned more dovish, tempering expectations of an accelerated rate-increase cycle. This more benign interest rate scenario, coupled with still-solid economic growth, underpinned a more positive market sentiment. The tariff war was less of a determinant factor, as investors were waiting for the G20 meeting at which President Trump and President Xi Jinping were expected to restart negotiations.

At the time of writing, a 3-month truce had been announced. The Q3 earnings season wrapped up, having improved meaningfully, with Q3 EPS growth inflected higher in November in all sectors, barring Real Estate. Despite noise around trade and macro weakness, the reporting season overall was relatively upbeat. While we saw a few high-profile profit warnings, companies did not markedly lower their profit guidance. However, heavyweight Tech companies weighed on investors’ sentiment, with Nvidia, Apple and Amazon dropping on earnings and dragging the market lower on a broader risk-off.

We reduced our strong overweight in Health Care, while slightly increasing our neutral position in Information Technology to ‘overweight’ on positive risk/reward and on signs of possible US-China trade deal progress. We kept our underweight position in Real Estate as we anticipate higher interest rates in the coming months.

Emerging equities: The Fed and the trade truce are boosting Emerging Markets

Emerging markets advanced in November, outperforming Developed countries. While Asia and the EMEA were the best-performing regions, Latin America suffered the most.

Emerging markets rallied after an appalling October, supported by the lower oil prices, the bounce in emerging currencies, hints from the US Fed of a more accommodative monetary stance, and a temporary truce in the trade war between the United States and China at the G20 meeting. The latter, together with further stimulus measures, supported Chinese stocks. India and Indonesia also had a strong month, while tech-related markets like Korea and Taiwan underperformed due to weakening global smartphone demand.

In EMEA, South Africa – and, even more, Turkey – rallied, due to strong currencies. Weak oil prices and tensions with Ukraine made Russia underperform.
Latam underperformed as Brazil – but especially Mexico – corrected strongly, due to the market falling and interest rates rising against the backdrop of increased uncertainty regarding the economic policy of the newly elected leftish president, Andrés Manuel López Obrador.

The rally in the global oil supply, in particular in the United States, fears of an economic slowdown, waivers on the US sanctions imposed on importers of Iranian oil and a fall in demand forecasts led to an oil-price correction. At sector level, Industrials was the best performer in emerging economies, whilst Energy and Materials suffered most in November.

We reduced our overweight position in India to ‘neutral’ amid higher economic and political risks (RBI governor, election year) and our overweight position in Mexico to ‘neutral’ as policy risk (airport cancellation, lower bank fees, governing by referendum, …) increased with the new leftish government. In a context of a lower oil price, better current account and positive risk/reward, we cut our underweight position in Turkey to ‘neutral’.
In terms of sectors, we reduced our energy exposure to ‘neutral’ through a lack of visibility on the oil price (supply/demand, global economy, geopolitics). We upgraded our neutral position in Industrials to ‘overweight’ (due to improving sector momentum, infrastructure investments and alternative energy) and, to ‘neutral’, our underweight position in Utilities, a defensive sector that offers better cash flow visibility, while taking advantage of the China environment stimulus.