November In Review: Shares Up, Yields Down

Australia | Dec 06 2022

This story features ORIGIN ENERGY LIMITED, and other companies. For more info SHARE ANALYSIS: ORG

The ASX200 gained 6.6% in November, buoyed by the ongoing decline in 10-year bond yields and a strong materials sector.

-The ASX200 gained 6.6% (total return) during November
-Value outperformed Growth, while large caps shone
-Materials contributed over half the market return
-Australian 10-year bond yield fell by -23bps to 3.53%

-The Australian dollar jumped to US$67.87 from US$63.97
 

By Mark Woodruff

The ASX200 gained 6.6% (including dividends) in November as investors responded to a more dovish than expected 25 basis point interest rate increase by the Reserve Bank of Australia and easing interest rate concerns in the US.

This monthly gain boosted the calendar year-to-date return into positive territory at 2.2%.

The Australian 10-year yield moved down by -23bps to 3.53%, less than the -38bps fall to 3.70% for US 10-year yields, as the Australian dovish pivot occurred in the prior month, explains Macquarie. Australian 10-year yields fell by -13bps to 3.76% in October.

Hopes for a re-opening in China also buoyed ASX shares, which also led to a 22% outperformance by Chinese shares relative to global equities.

Shares performed strongly internationally following comments from the US Federal Reserve indicating a potential slowing of rate hikes. The MSCI Developed Markets Index rose by 5.7% and the S&P500 in the US gained 5.6% in local currency terms.

Asia Pacific ex-Japan was the best performing region in a month when Emerging Markets gained 9.8% and outperformed Developing Markets.

In Australia, Materials contributed over half of the total market return in November, points out Morgan Stanley, driven largely by large-cap miners. The Utilities sector gained 20.8%, boosted by the takeover offer for Origin Energy ((ORG)), while Materials posted a 16.3% gain and Healthcare also rose by 6%.

The worst relative performers were Communication Services, Financials and Energy, which gained 2.1%, 2.5% and 2.7%, respectively.

Value outperformed Growth by 4.8% in November, extending its year-to-date lead to 13.8%, while globally Value has also maintained style leadership, most notably in the US, observes Morgan Stanley.

Large caps outperformed their mid-and small-cap brethren as the ASX50 gained 7% versus 5% for the MidCap50 and 4.9% for the Small Ordinaries.

Commodity prices displayed mixed trends, notes UBS, with iron ore rising by nearly 26% on news of government support for the China property market and reopening expectations, while Brent crude oil prices slipped around -10% on increasing doubts about a production cut at the next OPEC meeting.

Macquarie feels increasing concerns of a US recession also contributed to the falling oil price. By contrast, the Japan/Korea Marker (JKM) liquefied natural gas (LNG) price rallied by 31% in November.

The gold price rose strongly on speculation the US Federal Reserve is closer to the end of the hiking cycle, according to UBS.

The broker now expects the RBA to raise rates to 3.35% from the current 2.85%.

The Australian dollar jumped to US$67.87 from US$63.97, supported by optimism regarding a China re-opening, explains Macquarie. A lower US dollar also contributed.

UBS predicts a sub-trend pace of growth through 2023, with only a 4% increase in the ASX200 by the end of 2023, from the broker’s end-of-2022 target of 7,000, held since June. The index closed November at 7,284. This outcome is predicated on an easing of 2022 headwinds from input/energy costs, supply chain pressures and labour shortages.

Macquarie, on the other hand expects earnings downgrades on the ASX over 2023, based on the lagged impact of all the rate rises by global central banks in 2022. It’s felt Australian equities are currently closer to the top of a bear market rally. A stronger outperformance by cyclicals and small caps would be expected if the ASX was experiencing a bull market.

This broker sees the Federal Reserve easing interest rates in a US recession, which will drive a sustainable low for equities by mid-2023.

ASX100 Best and Worst Performers of the month

Company Change Company Change
ORG – ORIGIN ENERGY LIMITED 41.11% JHX – JAMES HARDIE INDUSTRIES PLC -14.12%
FMG – FORTESCUE METALS GROUP LIMITED 31.84% LLC – LENDLEASE GROUP -12.43%
EVN – EVOLUTION MINING LIMITED 29.33% PLS – PILBARA MINERALS LIMITED -8.45%
VUK – VIRGIN MONEY UK PLC 25.62% XRO – XERO LIMITED -7.84%
RIO – RIO TINTO LIMITED 24.29% SGR – STAR ENTERTAINMENT GROUP LIMITED -7.82%

ASX200 Best and Worst Performers of the month

Company Change Company Change
SFR – SANDFIRE RESOURCES LIMITED 44.09% ELD – ELDERS LIMITED -20.62%
ORG – ORIGIN ENERGY LIMITED 41.11% CKF – COLLINS FOODS LIMITED -18.62%
CIA – CHAMPION IRON LIMITED 35.90% NVX – NOVONIX LIMITED -16.42%
NIC – NICKEL INDUSTRIES LIMITED 33.56% HLS – HEALIUS LIMITED -15.16%
FMG – FORTESCUE METALS GROUP LIMITED 31.84% JHX – JAMES HARDIE INDUSTRIES PLC -14.12%

ASX300 Best and Worst Performers of the month

Company Change Company Change
EML – EML PAYMENTS LIMITED 59.26% CCX – CITY CHIC COLLECTIVE LIMITED -39.08%
ARU – ARAFURA RARE EARTHS LIMITED 54.24% BVS – BRAVURA SOLUTIONS LIMITED -35.25%
BGL – BELLEVUE GOLD LIMITED 48.65% PGH – PACT GROUP HOLDINGS LIMITED -26.13%
AMI – AURELIA METALS LIMITED 47.62% 5EA – 5E ADVANCED MATERIALS INC -22.64%
SFR – SANDFIRE RESOURCES LIMITED 44.09% JRV – JERVOIS GLOBAL LIMITED -21.43%

ALL-TECH Best and Worst Performers of the month

Company Change Company Change
EML – EML PAYMENTS LIMITED 59.26% BVS – BRAVURA SOLUTIONS LIMITED -35.25%
SPT – SPLITIT PAYMENTS LIMITED 35.25% 4DX – 4DMEDICAL LIMITED -25.58%
IRI – INTEGRATED RESEARCH LIMITED 29.73% MMM – MARLEY SPOON AG -25.00%
JAN – JANISON EDUCATION GROUP LIMITED 26.88% TNT – TESSERENT LIMITED -20.87%
NXL – NUIX LIMITED 22.81% NVX – NOVONIX LIMITED -16.42%

Australian Banks

A total shareholder return by the major banks of just 1% trailed the 6.6% ASX200 gain in November. 

All the banks underperformed as follows: CommBank ((CBA)) 3%, Westpac ((WBC)) 1.5%, National Australia Bank ((NAB)) flat, ANZ Bank ((ANZ)) -0.5%, Bendigo & Adelaide Bank ((BEN)) 1.5% and Bank of Queensland ((BOQ)) lost -2.5%.

Morgan Stanley points out since the start of the current RBA tightening cycle, the major banks' share prices have fallen by an average of around 2% and price earnings multiples (PE) have de-rated by an average of circa 2.2 times.

Relative to the other major banks, CommBank is trading on a P/E premium of 55% (end-November), while ANZ is trading on a discount of -25%.

On yields the ASX Industrials ex Banks, Morgan Stanley believes the major banks are slightly cheap relative to the average since 2010.

REITs

Despite a November performance by REITs just shy of the ASX200 gain and the second consecutive month of positive gains, Credit Suisse believes it is not the end of macro-driven volatility.

Feedback from a range of investors suggests to the broker concerns remain on a number of fronts, including Office sector operating conditions and asset valuations, and the impact on Retail REITs from potentially lower consumer spending.

In addition, Credit Suisse notes investor uncertainty over the “right” multiple to apply to Fund Managers and impacts on the FY24 outlook for Residential due to affordability pressures and potentially lower demand for new dwellings.

The analyst feels much of the uncertainty relating to the issues noted above will continue into the second half of FY23.

Regarding November, fund managers like Goodman Group ((GMG)) and Centuria Capital Group ((CNI)) were relative outperformers, as were small cap names such as HealthCo Healthcare & Wellness REIT ((HCW)), Dexus Industria REIT ((DXI)) and Ingenia Communities Group ((INA)).

Underperformers included REITs with exposure to storage such as National Storage REIT ((NSR)) and Abacus property Group ((ABP)), and smaller market cap names with Office exposure including Growthpoint Properties Australia ((GOZ)) and GDI Property Group ((GDI)).

After recent outperformance, Retail REITs paused during November, while Residential names such as Mirvac Group ((MGR)) and Stockland ((SGP)) gained, notes Credit Suisse.

The broker’s preferences among REITs are for Goodman Group, Mirvac Group, Stockland, Charter Hall Retail REIT ((CQR)) and Region Group ((RGN)).

Commodities

The CRB Commodity Index rose by 2.1% to 280 in November.

Brent crude oil fell by -9.9% to US$85.4/bbl.

The iron ore price rose by 25.9% to $US102/t.

The gold price increased by 8.2% to US$1,768.3/oz.

Hard coking coal prices fell by -14.9%, while thermal coal rose by 11.8% during November.

Foreign exchange

The US dollar Index (DXY), a measure of the value of the US dollar relative to a basket of foreign currencies, declined by -5% to 105.99.

The Australian dollar moved higher to US$67.87 from US$63.97.

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CHARTS

ABP ANZ BEN BOQ CBA CNI CQR DXI GDI GMG GOZ HCW INA MGR NAB NSR ORG RGN SGP WBC

For more info SHARE ANALYSIS: ABP - ABACUS PROPERTY GROUP

For more info SHARE ANALYSIS: ANZ - ANZ GROUP HOLDINGS LIMITED

For more info SHARE ANALYSIS: BEN - BENDIGO & ADELAIDE BANK LIMITED

For more info SHARE ANALYSIS: BOQ - BANK OF QUEENSLAND LIMITED

For more info SHARE ANALYSIS: CBA - COMMONWEALTH BANK OF AUSTRALIA

For more info SHARE ANALYSIS: CNI - CENTURIA CAPITAL GROUP

For more info SHARE ANALYSIS: CQR - CHARTER HALL RETAIL REIT

For more info SHARE ANALYSIS: DXI - DEXUS INDUSTRIA REIT

For more info SHARE ANALYSIS: GDI - GDI PROPERTY GROUP

For more info SHARE ANALYSIS: GMG - GOODMAN GROUP

For more info SHARE ANALYSIS: GOZ - GROWTHPOINT PROPERTIES AUSTRALIA

For more info SHARE ANALYSIS: HCW - HEALTHCO HEALTHCARE & WELLNESS REIT

For more info SHARE ANALYSIS: INA - INGENIA COMMUNITIES GROUP

For more info SHARE ANALYSIS: MGR - MIRVAC GROUP

For more info SHARE ANALYSIS: NAB - NATIONAL AUSTRALIA BANK LIMITED

For more info SHARE ANALYSIS: NSR - NATIONAL STORAGE REIT

For more info SHARE ANALYSIS: ORG - ORIGIN ENERGY LIMITED

For more info SHARE ANALYSIS: RGN - REGION GROUP

For more info SHARE ANALYSIS: SGP - STOCKLAND

For more info SHARE ANALYSIS: WBC - WESTPAC BANKING CORPORATION