November showed that even minor shifts in economic outlook can significantly affect asset markets, potentially reaching a pivotal point. While the macro environment has long been besieged by inflation, November brought a much‐desired relief in the form of a notable decline in inflation momentum. The markets had a rather pronounced reaction to the positive surprises in inflation data, indicating a perceived shift in inflation risks. According to Reuters, approximately 53% of inflation data came in below expectations, 25% matched predictions, and 22% exceeded them. Oil prices experienced a modest decline of $4 to $5 over the month. This drop signalled to the market a decreased likelihood of oil prices rebounding to around $90, a level that only recently was considered a possibility. Food prices, too, have been on a downtrend.
Encouraged by the relaxed monetary conditions, equity markets recorded extraordinary gains in November. Global equities returned 9.4%, more than reversing October’s losses. The monthly gains in global equities was the strongest since 2008. Emerging markets also witnessed healthy gains but lagged developed markets because of Chinese equities’ lingering poor absolute performance.
The major regional EM equity indices were all up in November led by the MSCI EM Latin America Index (+14.00% MTD, +22.55% YTD), followed by the MSCI EM Asia Index (+7.59% MTD, +4.36% YTD) and the MSCI EM EMEA Index (+6.46% MTD, +3.26% YTD). Within the larger markets in Asia, Korea (+16.24%) was the strongest performer, followed by Taiwan (+13.16%), India (+6.68%) and China (+2.52%). Elsewhere, Brazil (+14.23%) was up big and so were the South African equities (+7.69%).
Although few headlines in the financial media reflect this, 2023 was a year of solid, if patchy, economic growth momentum in China, which is closing out well ahead of mid‐year consensus expectations. Nevertheless, Chinese assets performed extremely poorly in 2023. We expect economic momentum to stay reasonably positive in 2024, but unlike this year’s experience, next year’s economy should translate into broadening positive momentum for forward earnings. This bodes well for a positive performance from unloved and undervalued Chinese stocks in 2024.
