Global equities

Global equities – November 2021 results

10 Dec 2021 | 3 minutes read
Ted Alexander
Portfolio Manager
& Head of Investments

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Stock markets have recently been dominated by the emergence of a new strain of COVID-19, Omicron, but at this early stage it’s unclear whether the strain is a serious danger, or could even be a positive as a more mild version. It’s also unclear how to pronounce. In modern Greek it’s AWE-mee-kron, but this is classical Greek, and scholars are arguing over the true pronunciation – which doesn’t help us fund managers in investor calls! But even though everyone is familiar with the next symbol, π, scholars still debate whether it’s pie or pee. I’ll go with pie, and let’s hope coming strains continue to be on the mild end of the spectrum and morph into a more flu-like outcome.

Global markets fell around 4% on the news of Omicron – but Australian investors were insulated by a greater fall in the value of the Australian dollar (AUD). With the AUD falling from 75c to 70c through November, your global portfolio rose in value, despite the MSCI World Index (Index) falling in both US dollar and local currency terms. Investors are anticipating action from the US central bank, the Federal Reserve, which is expected to increase interest rates and drive flows of cash to those higher rates in the US. I’m not so sure! It’s tough to go against the market, but I think the AUD has been oversold, and expect it to bounce back in the next few months. With the information at hand today, I don’t think the AUD should continue sliding below 70 US cents – but it’s a tough gig predicting currency movements.

Our Orca Global Fund rose +2.4%1 for the month. We saw stock markets rotate into more defensive sectors given the Omicron news, helping our staples and healthcare holdings. The Orca Asia Fund was also up +2.4%1, as the Fund avoided some of the more controversial Chinese tech names, and benefited from regional diversification to Indonesia and Taiwan. The Orca Disruption Fund also added value to investors, up +1.3%1.

In terms of the economic situation on the ground, in the US we’re hearing that people who are able and want to work can get as many hours as they want. Dollar General is a top-ten holding, with the most retail outlets of any US supermarket, particularly in regional areas. Their customer-base is stressed by inflation, but has a job. The next US government stimulus package on infrastructure looks set to pass, and will be a positive for stock markets, with more money pumped into the economy. In the US, the economy looks good, with the only problem being dislocation remaining from the pandemic, with supply chain disruption, and employees out of the workplace, or disrupted by social change. One story coming through is that US shoppers may have been scared by supply chain concerns into doing all their Christmas shopping early, meaning retailers now have too much inventory to sell – the opposite outcome to that feared!

The European economy has struggled more, with more lockdowns and restrictions coming through. Europe generally exhibits higher political risk, and this is true currently. European stocks have underperformed US stocks through the pandemic, but the impact was mainly felt midlate 2020, and we see plenty of opportunities to invest in Europe.

We remain of the opinion that global stock markets are a very attractive investment when comparing potential return to risk across asset classes. With markets trading close to all-time highs, serious economic issues could cause a reversal, but so far we don’t think Omicron is severe enough to warrant a major move. There is now a month until companies start to release their financial results for the full year of 2021, and we wait to see hard evidence of what’s really happening in businesses held in the funds, and others we are also tracking closely.

 Note: 1. Fund performance is quoted net of fees and inclusive of reinvested distributions. Past performance is not a reliable indicator of future performance

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