The global equity markets strengthened again in November following market expectations that interest rates will ease in the upcoming months and this was also spurred by the bond market. The expectation of lower rates resulted in the U.S. 10-year Treasury yields to decline from the peak of 4.25% in October to 3.61% during the month. Asia (ex-Japan) performed well during the month following President Biden and President Xi’s meeting which signaled improving U.S.-China relations as well as the possibility of zero-Covid policy easing in China following announcement that government is increasing vaccination of older people in China. The fund was up 2.6% for the month, underperforming the benchmark because most of the November performance reflective in the market reflected in the fund beginning of December.

MSCI World Index was up 7% for the month as the equity market saw strong gains after Jerome Powell’s speech at the Brookings Institution which had a dovish tone relative to his speech at the FOMC Press Conference on 2nd November. The comments he made during the speech at Brookings were the same as previous comments in terms of inflation, economic outlook and labor market. However, there certain comments which signaled to the market that we are heading for a peak in interest rates and a potential pivot. He stated that “the time for moderating the pace of rate hike increases may come as soon as the December meeting” and that “…slowing down rate rises at this point is a good way to balance the risks of overdoing hikes,”. As a result of these comments, the market has only priced in a rate hike of 50bps in December. The dovish commentary resulted in a rally in the equity markets, but Powell did state that rate cuts aren’t something that will be done soon and that tightening of the monetary policy will remain until inflation shows consistent signs of coming off. So, is the market being too optimistic? It takes at least 9 months for interest rate decisions to be felt in the economy and there’s certain factors which could result in inflation staying higher for longer. Some of these factors are the lack of infrastructure and production development in fossil fuel-based energy sources which has resulted in lower energy supplies driving up oil prices thus overall inflation, Covid-19 impact on supply chain constraints which has increased costs and geopolitics conflicts resulting in deglobalization.

The best performer in the fund was our Chinese base metal etf as it benefited from the price of iron ore increasing by 2.2% and the news that the People’s Bank of China is injecting funds to policy banks to increase infrastructure projects lending. Overall, the fund remains conservative as we believe that all the positive news for economic data has been priced in, but the market may not be ready for bad news. Any bad news could increase volatility and see a sell in the equity markets.