MAIN EVENTS OF THE MONTH
Equity markets managed to erase two months of losses in just one month. The declines experienced in September and October were wiped out in November, with the market returning to its year-to-date highs. However, we are still not at all-time highs; a bit more growth is needed to reach that milestone.
What drove the growth of the U.S. equity market? The release of October’s inflation data in the U.S., which showed inflation falling to 3.2%—a significantly lower rate than expected. Additionally, for the first time in seven months, retail sales declined.
Meanwhile, China is facing tough times. For the first time in 25 years, the volume of net foreign investments turned negative. Foreign investors are pulling their funds due to China’s trade wars with the U.S., its support for Russia, and the slowdown in its economy. This is just one of the many issues plaguing this once-overvalued economy.
Finally, a significant event regarding the habitability of our planet: on November 17, 2023, the global average temperature surpassed the 2°C growth threshold compared to the 1850–1900 average. Moreover, 2023 is expected to be the warmest year since the beginning of meteorological records—and, according to various models, possibly the warmest year in the last 100,000 years.
EQUITY MARKETS
November ranked among the very positive months for equity markets in the developed world. Major regions recorded substantial growth. In fact, the MSCI World Index outperformed U.S. equities (measured by the S&P 500) this month. Growth in European equities was more modest compared to the aforementioned indices but still reached 5%.
CURRENCY MARKET DEVELOPMENTS
After stabilizing in October, the euro entered a strengthening phase against the U.S. dollar in November, moving further away from parity. No major drivers were observed in November that could be identified as the primary reasons for the euro’s strengthening against the dollar.
Similarly, in the euro-to-Czech koruna pair, there were no clear signals explaining why the euro weakened against the koruna. One notable factor, however, was a shift in the rhetoric of the Czech National Bank (CNB). Previously, it seemed likely that the CNB would lower rates by half a percentage point by the end of 2023. Now, a stagnation in rates by year-end appears more realistic.
IMPACT ON OUR PORTFOLIOS
November had a highly positive impact on nearly all portfolio components. Equities in developed markets, as measured by the MSCI World Index, recorded a 10% month-on-month increase. Additionally, 10-year government bonds from the U.S. and the Czech Republic performed well, with prices rising due to declining yields. The only exception was the price of crude oil, which fell, but this had no significant impact thanks to robust regional and sectoral diversification within the equity portion of the portfolio.
Maintaining an unhedged currency position in the equity (dynamic) portion of the portfolio continues to be a viable strategy. During times of crisis, investors typically flock to the U.S. dollar, which generally strengthens while the Czech koruna weakens. This dynamic helps cushion declines in the equity portion of a portfolio invested in developed markets (primarily in the U.S.) during periods of market stress.
