November and Its Impact on Your Portfolios

November and Its Impact on Your Portfolios

12/13/2023

November had a very positive impact on almost all portfolio components. Stocks surged by 10%, and prices of 10-year government bonds also rose due to declining yields.


Key Events of the Month

Stock markets managed to erase two months' worth of losses in just one month. Within November, the declines experienced in September and October disappeared, and the market returned to highs for this year. However, we're still not at historical highs, a little more growth is needed.

What was the main driver of the US stock market growth? The release of October's inflation figures in the USA. Inflation dropped to 3.2%, significantly lower than expected. Additionally, after seven months, there was a decline in retail sales.

Meanwhile, China is going through tough times. Net foreign direct investment turned negative for the first time in 25 years. Foreign investors are pulling money out due to trade wars with the USA, Chinese support for Russia, and the slowdown of the local economy. It's just one of the many problems for this previously overvalued economy.

Lastly, a critical event concerning our planet's habitability. On November 17, 2023, the average Earth temperature exceeded the 2% growth threshold for the first time, compared to the average from 1850 to 1900. Overall, 2023 is expected to be the warmest year on record since meteorological records began. According to various models, it might be the warmest in the last 100,000 years.

It's anticipated that the result, and the subsequent regular climate conference COP28 in Dubai, will intensify the fight against climate change. From an investor's standpoint, this emphasizes the greater importance of investing in portfolios with a low carbon footprint and high ESG standards.

Despite a significant surge in US stock prices, by the end of November, we were still in a zone of moderate discounts. The exact discount value on November 30, 2023, was 4%. The fair value indicator from Morningstar below shows whether stocks are cheap (blue zone), expensive (orange area), or at a fair price (black line).

Stock Markets

November was highly positive for the development of stock markets in the developed world. Major regions showed interesting growth. Even in this month, the global MSCI World stock index grew more than the prices of US-based companies' stocks (measured by the S&P 500 index). European stock growth was lower compared to the aforementioned indices, yet it reached 5%.

blue line – performance of the US S&P 500 index over 18 years in USD

red line – performance of the global MSCI World index over 18 years in USD

green line – performance of the European STOXX 600 index over 18 years in EUR

Currency Market Development

After stabilizing in October, the Euro shifted into a strengthening phase against the Dollar. Consequently, in November, it moved significantly away from the possibility of a Euro/Dollar parity. There were no strong impulses in November that could be marked as primary reasons for the Euro's strength against the Dollar.

Regarding the Euro/Czech Koruna pair, there were no clear signals for why the Euro weakened against the Koruna. The only noteworthy change was in the Czech National Bank's rhetoric. While previously it seemed that the Czech National Bank would cut rates by half a percentage point by the end of 2023, it now appears that rate stagnation is more realistic.

Impact on our Portfolios

November had a very positive impact on almost all portfolio components. With a 10% month-over-month growth, stocks in companies in the developed world, measured by the MSCI World index, finished strong.

However, even 10-year US and Czech government bonds didn't stay in the background. Their prices rose due to declining yields. Only the price of black gold (oil) decreased, but it didn't have a significant impact with quality regional and sectoral diversification in the stock component.

It's still a suitable strategy not to hedge currency risk in the stock (dynamic component) of the portfolio. In times of crisis, investors tend to move to the dollar, usually causing its appreciation and subsequently leading to the depreciation of the Czech koruna. Thus, in times of crisis, the stock component invested in the developed world (especially in the USA) doesn’t decline as much.

Are you interested in an investment solution tailored specifically for you? Or just a consultation? Don't hesitate to contact us.

Do not hesitate to contact us

Contact

Ing. Petra Štěpánková, MBA, EFA

+420 604 218 602

petra@meliorinvest.cz

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