Twenty20 Investments - iBasket

5. December 2016 16:39
by Irene
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November 2016 - Market Commentary

5. December 2016 16:39 by Irene | 0 Comments

Another surprise, this time coming from the United States with the presidential election of Donald Trump that will have astonished many. US equities gained, but so did Sterling, which was up 2.3% for the month of November, not helping Dollar investments for a Sterling denominated investor. With Trump promising to invest in infrastructure and tax cuts this should help boost domestic growth in the US, the Russell 2000 Index saw an exceptional return for Mid Cap equities which was up 11.5%.

United Kingdom

Brexit had a little speed bump with the UK High Court ruling that the government must seek parliamentary approval before triggering Article 50 to start the Brexit process. This strengthened Sterling, together with the Autumn statement, which saw infrastructure being boosted, and thus hoping to increase UK GDP growth. The increase in Sterling and the potential GDP growth did not help equity markets though, with the FTSE 100 being down -2.0% for the month, although the FTSE 250 was essentially flat for the month.

Europe

The Eurozone has had more political uncertainty with the referendum in Italy in early December and elections coming up in 2017 in France and Germany. France already surprised with the favourite candidate, Alain Juppe, losing to Francois Fillon as the Republican candidate. From an economic point of view though, the Eurozone points to ongoing expansion with the Purchasing Managers’ Index (PMI) and consumer confidence up. <

United States

With new emphasis in the United States on fiscal over monetary stimulus, expectations of inflation increased which helped specifically mid and small cap companies which are more US centric. The Dollar increased, by 3.4% against the Euro, also helped by a nearly certain rate hike in December by the Federal Reserve.

Asia and Emerging Markets

The clear losers of the Donald Trump election and the subsequent increase in the Dollar were Emerging Markets with fear of adverse US foreign policy and potentially protectionist trade measures. The hardest hit were Mexico and Brazil, dropping -14.7% and -13.2% in GBP respectively. In Japan, equities rallied with the Nikkei 225 up 5.1%, but with the US Dollar rallying and the interest rate differential between the US and Japan widening, the Yen on the other hand lost -8.3% against the Dollar.

Fixed Income

The Trump election saw a regime shift in fixed income markets. As monetary policies move from quantitative easing to infrastructure spending and tax cuts, this is not as generous for yield curves and brings expectations of higher inflation. The result was an increase in yields, especially at the longer end, more or less across the board. The hardest hit were Emerging Markets bonds, where there was additional pressure due to the strengthening of the US Dollar.

Commodities

Commodities mostly had a good month, helped by an agreement by OPEC to cut production, which saw Crude Oil rise by 7.2% in USD. Gold on the other hand lost -8.0% in USD, also facing headwinds from a stronger Dollar.

Market Returns Overview



Source: Markit, Twenty20 Investments, as of 30 Nov 2016, all returns in GBP.

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