November was a positive month for equity markets overall as the MSCI World Index rose by 2.3%. However, this figure masks the volatility during the month. An initial rally, which saw the index rise by over 5% in the first weeks of November, was eroded later on in November by further bad debt fears, this time in Dubai.
In the first weeks of the month news from the ECB and US Federal Reserve aided markets’ progress. News flow pointed to the fact that against the current economic background, there is very little chance of a reversal in the monetary policy currently being pursued by the Fed and the ECB, among others.
Despite the growing talk of exit strategies from current monetary policies both central banks could remain on the sidelines for some time to come with regard to starting to increase rates from their historically low levels. The US is now expecting to keep rates at zero or close to it until at least late 2010. This was received positively by markets as no short term policy threat or speed bump is now foreseen on the horizon.
Other initial drivers of positive market performance came from US housing sales data which improved more than expected in October and the US Dollar weakened as the US government and taxpayer funded efforts to revive the economy. ‘Black Friday’ was also viewed by markets as a potential boost to consumer spending in the US as this is the day when Christmas shoppers tend to begin their festive spending sprees and a sustained recovery in the US is primarily dependant on a positive consumer.
Towards the end of the month sentiment turned around across equity markets as the fragile nature of the global market showed its face again – this time in light of fears around sovereign debt in Dubai. Noise emanated from the gulf that Dubai may default on a December debt obligation. Initially, Dubai looked to reschedule or delay their debt repayments and markets sold off heavily around the world as a result. The cost of insuring against emerging market sovereign debt defaults soared on the news also. Fears around an absolute default waned however in the last days of the month.
| Markets Year to Date (to 30th November ) | Return |
|---|---|
| Ireland | +20% |
| UK | +25% |
| USA | +24% |
| Nasdaq | +36% |
| Europe | +24% |
| Japan | 0% |
| Pacific Basin | +53% |
| World | +24% |
| Bonds | +5% |
Source – KBC Asset Management & Irish Life Investment Managers.