November Monthly Market Update

As at end of November 2022


Inflating Sentiment

Over the month global equities continued to advance from the October lows, with emerging market equities outperforming developed markets by a sizeable margin. The MSCI Emerging Market (USD) Index rallied 14.8%, which was predominantly driven by positive news flow from China. Against a backdrop of increasing social unrest in regard to zero-COVID policies, Chinese authorities finally began to ease some of the restrictive measures, which was well received by investors. Additionally, stimulus measures were announced for the beleaguered property sector, plus US-China geopolitical tensions outwardly thawed after a meeting between President Biden and President Xi suggested the two superpowers are not looking for conflict, but will continue to compete vigorously. This combination saw Chinese equities surge, with the MSCI China Index returning 29.0%. While developed markets were nowhere near as strong, performance was still solid, with the MSCI World (USD) Index producing a return of 7.0%. However, due to the sharp rise of the kiwi dollar on the basis of rising global risk appetite, the MSCI World (NZD) Index only recorded a return of 0.04%.


A key driver of improving global market sentiment was the continuing decline in inflationary expectations, which was taken as foreshadowing less aggressive monetary policy in the future. In the US, where inflation worries have been weighing on sentiment, the latest price data continued to show the pace of inflation slowing, now to a level that is meaningfully below the multi-decade highs seen in the middle of 2022. This helped fuel hopes that inflation has peaked and thus the current rate hiking cycle may soon be coming to an end. The view that central bank tightening may be ending was also supported by rhetoric from the Federal Reserve (Fed). Early in the month, Fed Chair Jerome Powell delivered another jumbo rate hike of 0.75%, but signalled the pace of rate hikes will likely be less aggressive going forward. However, Powell also cautioned against speculation that the Fed may soon pause, and that it will maintain rates at a restrictive setting for some time. Interestingly, this is a scenario that seems to be largely ignored by the market, given rising expectations that the US may enter a recession in the near term, wherein the Fed will be forced to quickly start easing again.


Interesting Valuations

A late surge helped the local market end in positive territory, albeit lagging behind global peers, with the S&P/NZX50 Index returning 1.9%. This result was largely due to outperformance from Index heavyweights Ebos (EBO), a2 Milk (ATM) and Fisher & Paykel Healthcare (FPH), with the latter being November’s top performer with a return of 20.5%. FPH rose sharply on a pre-guided but mixed first half result, which calmed some nerves by underscoring a stabilisation of the business with a less volatile longer term outlook. ATM had a more direct catalyst in the form of regulatory approval to sell its infant formula in the USA, following a shortage earlier in the year. ATM returned 14.7% for the month.

The RBNZ’s extra-large 0.75% hike in the OCR coincided with the release of asset valuations from listed property operators, which have finally responded to the cumulative increase in rates. In their periodic revaluations, multiple operators reported declines in asset values due to cap rate expansion. Kiwi Property Group was the standout with a -$213.3m revaluation.


The retirement sector also felt the pain with all four listed operators finishing in the red after half year earnings releases from Arvida (ARV), Oceania (OCA) and Ryman (RYM). RYM was also the overall worst performer with a -20.6% return. While the whole aged care sector has been impacted by softening house prices, RYM’s woes have been exacerbated by its $3b of net debt, limited interest rate hedging and delayed settlements on new sales. The downward trend also continued for Serko, which returned -17.8% despite reporting a decent return to growth post COVID. The positive revenue result was overshadowed by rising costs and an uncertain economic outlook.



Stricken Chicken

Usually the province of retail sales events, November euphoria spilled over into equities this month, courtesy of a resurgent Fed pivot narrative. The S&P/ASX200 Index returned 6.6% with all subsectors positive, most notably Utilities and Materials, which returned 20.8% and 16.3% respectively.

The move in Utilities was driven by major constituent Origin Energy, which returned 41.1% after receiving a takeover approach from a consortium led by financial investor Brookfield. Origin’s performance was second to miner Sandfire’s 45.2% return on the back of a resurgent copper price. At the other end, fast food franchisee Collins Foods and rural agents Elders were the worst performers, returning -18.6% and -18.2% respectively. Collins Foods got cooked after disclosing margin pressure at KFC and a pause in store roll-out for Taco Bell at its half-year result. Despite hitting the high end of earnings guidance, Elders was marked down on its long-tenured CEO announcing his retirement, alongside concern that the current agriculture cycle may have peaked.


Data released late in the month showed October annualised CPI inflation decelerating from 7.3% to 6.9%. Despite being a single data point, markets eagerly reacted, pricing in a less aggressive monetary policy trajectory. With the RBA already having shifted gears to smaller 0.25% hikes since October, Australia is once again shaping up to be the soft touch on rates. Meanwhile, growth in full time jobs trounced weaker participation to bring the unemployment rate down to 3.4%; and wages growth accelerated to 3.1%. For the moment, strong employment data continues to paper over the cracks appearing in retail spending, but with mortgage payments yet to fully reflect higher rates, 2023 is shaping up to be a pivotal year in more ways than one.



See Fifty, Raise Seventy-Five

Global bond markets rallied strongly during the month on the back of US CPI data finally printing below survey expectations. Even though US headline inflation is still well above target levels, risk assets welcomed softening core inflation trends in the underlying data. The subsequent shift to lower bond yields and tighter credit spreads underpinned a return of 2.4% for the Bloomberg GlobalAgg (NZD) Index.

New Zealand bond markets underperformed, with the S&P/NZX Investment Grade Corporate Bond Index returning 1.2% while the S&P/NZX Government Bond Index managed 0.6%. The stronger performance for the corporate bond index can be partly explained by a change in funding strategy for Kāinga Ora (which is one of the largest constituents in this index). Kāinga Ora’s financing requirements will now be met via Crown borrowing agency New Zealand Debt Management and no longer be funded through debt capital markets, which have been a higher cost source of funding relative to government bonds. Credit spreads for outstanding Kāinga Ora bonds subsequently compressed as the market digested the expected drop off in supply and the bond prices rose as a result.


The under performance of New Zealand government bonds can be explained by the RBNZ maintaining their more aggressive tone towards fighting inflation. At its final meeting for 2022, the RBNZ raised rates again, stepping up the increment to 0.75%, which took the OCR to 4.25%. Accompanying the policy statement were revised forecasts which now indicate inflation topping out at 7.5% y/y over the coming quarters, GDP to start declining from mid-2023, and a peak OCR of 5.5% to be sustained into 2024. Although the hawkish announcement comes amidst other key central banks contemplating slowing the pace of rate hikes, the RBNZ has a hiatus with the next scheduled review of monetary policy settings not until February next year. Committee members and market participants alike will have to wait until late January for the release of local Q4 inflation data to assess effects of the cumulative increase in the OCR delivered to date.

Download Latest Market Update >

View our Funds >

Request an Info Pack >

View Fund updates >