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Capital Markets Update: November 2021

Octopus Multi-Manager team3 December 2021

Market updates from November

In a Nutshell

In what was to begin with a generally positive month for investment returns, the emergence of the ‘Omicron’ Covid-19 variant put a dampener on the markets in the final week, as countries responded with increased travel restrictions and safety measures. This late downturn overshadowed some fairly good economic data which came to light on manufacturing, retail, and employment in many leading economies, in spite of continued inflationary pressures.

COP26

The 26th UN Climate Change Conference (COP26) took place in Glasgow at the start of the month, as both political and business leaders made further commitments towards limiting climate change. The combination of both world leaders and CEOs providing keynote speeches during these two weeks highlighted the need for commitment and cooperation from both public and private bodies to implement positive change.

A major focus at the summit was the limitation of future coal use, and the resultant pledge to “phase down” rather than “phase out” its use by China and India. This somewhat watered down announcement nevertheless had the effect of reducing share prices in mining and coal-based stocks, with China’s Yanzhou Coal falling 2.4%, and in Indonesia, the largest coal exporter, Bumi Resources and Indika Energy fell 5.7% and 7% respectively.

However, due to the ongoing squeeze in gas supply, and the need for electricity to continue with global production and development, it is expected that the value of coal will remain resilient until cleaner energy sources become more viable to meet these needs in full.

The New ‘Nu’

News of the Omicron variant’s emergence in Southern Africa, alongside the increased hospitalisations seen in Northern Europe resulted in increased restrictions, with lockdowns imposed in Austria and the Netherlands, and ‘work from home’ mandates in Germany and Belgium.

As data is still burgeoning as to its severity and resistance to existing vaccines, it is too early to say how much of an impact this will have on people’s health, however in the short term it is certainly expected to affect the hospitality and tourism sectors, which will take the brunt of any social distancing and travel restrictions imposed.

While this news had the effect of dampening growth in many sectors, it led to a further resurgence for pharmaceutical companies. Pfizer’s share price increased by 25% in November, and Moderna’s share price increased almost 35% in one week after the announcement that they would likely have an updated vaccine ready to roll out globally by February 2022.

Signs of Recovery

Positive economic data was released in the US this month, with joblessness claims falling to their lowest level since 1969 — with 10.4 million job openings compared to 7.4 million unemployed. There were also multiple positive PMI reports for the US, Europe, and China showed that manufacturing was on the rise, and indicated the impact of the supply chain and electricity shortages is lessening in severity.

Retail sales figures arising from October were also encouraging, with month on month increases in the US of 1.7%, the Eurozone 1.4%, and UK 0.8%. This growth was in spite of inflation concerns, with the US CPI reaching 6.2%, the Eurozone 4.1%, and UK 4.2%. Should inflation continue at this rate it will limit the purchasing power of consumers, and we would expect sales to reduce accordingly.

Looking Ahead

Much of the short term market movements are expected to be fuelled by increased data arising from the Omicron variant, and the effects of any countermeasures imposed in response.

Should it be shown that current vaccines are effective, then for countries where they have been widely distributed the impact will be much lower from a health and restrictions standpoint. However if its transmissibility proves particularly high, its effect on developing economies which have been unable to procure sufficient supply of vaccines will likely be most affected, which in turn may further impact global mining, supply and production once again.

Important information:

The value of an investment, and any income from it, can fall or rise. Investors may not get back the full amount they invest. Past performance is not a reliable indicator of future results. Personal opinions may change and should not be seen as advice or a recommendation.

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