Global equity markets reached new all-time highs in November as the positive news on three different vaccines are giving up hope that a return to normalcy might be around the corner. The outcome of the U.S. elections also helped remove political uncertainties.
Canada
The S&P/TSX Total Return Index ended the month of November up 10.57% to finish in positive territory YTD as investors cheered the positive developments of the COVID-19 vaccine. Health care, energy, and financials led the way while materials, staples, and utilities lagged.
The Canadian loonie increased 2.39% against the greenback as crude oil prices surged as much as 26.76% last month. As a result, Canadian oil sands stocks staged an impressive rally from their lows. In other news, the cannabis industry within health care was robust last month as the Biden administration is expected to decriminalize the use of marijuana.
Recently, Bank of Canada Governor Tiff Macklem reiterated the recovery would be tough. He believes the Canadian economy to operate below its potential up to 2023. For this reason, interest rates are to stay at record lows until inflation creeps back up the 2% target.
Canada is still struggling to contain its second COVID-19 wave. Alberta, Ontario, and Quebec have each posted more than 1,000 cases a day. Hospitalizations and deaths are starting to surge again, as the proportion of older people getting infected increases at an alarming rate.
U.S.
The S&P 500 Total Return Index ended the month of November up 10.95% to a new record high as investors welcomed the presidential change and the positive developments on the COVID-19 vaccine. Energy, financials and industrials led the way while utilities, staples, and health care lagged
Pfizer and Moderna have released their Phase III clinical results and stated their COVID-19 vaccine is effective by as much as 95% and 90%, respectively. The distribution should begin in December mainly to health care workers first. The whole population may be vaccinated by Q3 2021 if all goes well. Investors saw this development as a game-changer and chased deeply undervalued cyclicals while dumping work-from-home darlings.
Biden won the U.S. elections with 306 electoral votes, more than the 270 required. Biden also beat Trump by more than 6 million in the popular vote tally. Trump has not yet conceded defeat and launched a series of legal attempts to reverse the result without success. However, he said if Biden is certified by the electoral college as the winner, he will depart the White House on January 20th. Markets reacted positively to the election result, as the Biden administration should create geopolitical stability and restore multilateralism with U.S long-term allies.
Fed’s Chairman Jerome Powell said the central bank would keep interest rates near zero until the U.S. economy has recovered fully from the pandemic. He admits the recovery is faster than anticipated but uneven. Low-income workers are still struggling to make ends meet. He also hinted the purchase of municipal and corporate bonds to its $7 trillion balance sheet might be extended in 2021. As of now, these liquidity facilities are set to expire by year-end. However, we will find out at the next Fed meeting of December 15 and 16.
International
The MSCI ACWI Ex USA Total Return Index ended the month of November up 13.46% on optimism that the economic activity and earnings will strengthen next year. Discretionary, materials, and telecom led the way while health care, info tech, and industrials lagged.
The G-20 made a virtual summit hosted by Saudi Arabia. The IMF emphasized that elevated asset prices are increasingly showing a disconnect with the real economy and are a potential threat to financial stability. Also, the economic recovery is starting to show weakening signs due to the resurgence of COVID-19 restrictions, and that the pandemic crisis is expected to leave uneven scars. However, global immunization through vaccination should help in 2021.
According to a report by the Institute of International Finance, global debt should increase to a record $277 trillion by the year-end as governments and companies continue to spend in response to the COVID-19 pandemic. Developed and Emerging market’s debt to GDP reached 432% and 250% respectively in Q3 2020. Despite its lower ratio, repaying debt has proven to be more difficult in emerging countries, even with record-low borrowing costs worldwide.
The EU’s €750 billion recovery fund was blocked by Hungary and Poland, raising concerns the funds will be delayed even if a compromise is reached. The European Central Bank President Christine Lagarde requested EU leaders to resolve the budget impasse. As the eurozone is heading back into recession this quarter, she promised to keep its dovish monetary policy and focus on more emerging government bond purchases and cheap loans to banks.
The Portfolio Management Team