The S&P/ASX 200 Accumulation Index was up 1.64% during the month. The Australian equities market performed relatively well, with broad based gains across cyclical and rate sensitive stocks on the back of declining bond yields.
Globally, Japan’s Nikkei 225 led gains again, finishing up 3.3% in November. In the US, the S&P 500 was up 3.1%. The Euro Stoxx 50 was down, falling 2.8%. The UK also posted negative returns with the FTSE 100 down 1.8%.
During the month, the Reserve Bank of Australia (RBA) maintained the cash rate at 1.50% for the 15th consecutive month, noting that the outlook for growth in the Australian economy was largely unchanged from previous three months. The RBA noted that forward indicators have, for some time, been positive and acknowledged the broadly strengthening labour market. The RBA noted that growth in rents had been subdued and housing credit growth had eased marginally, although it remained faster than household income growth. The bank also stated their expectation that domestic inflation would increase, but only gradually.
The latest domestic economic data was mixed in November. The NAB Survey of Business Conditions increased to an all-time high of +21.1 in October. Retail sales disappointed, remaining unchanged for September. Employment grew a weaker than expected 3,700 positions for October as did the wage price index which grew at just 0.5% for Q3. The unemployment rate fell to 5.4%. Residential building approvals for October rose a stronger than expected 0.9%.
In stock specific news, Domain Holdings made its debut on the ASX following its demerger from Fairfax Media. Aristocrat Leisure announced favourable FY17 results and the acquisition of social gaming company, Big Fish Games. Most of the major banks reported their FY17 results which were greeted half-heartedly by investors. On the last day of the month, the Federal Government announced a Royal Commission into alleged misconduct by the banks and other financial institutions.
The majority of sectors were positive over the month. The best performing sectors were Real Estate (4.7%), Energy (4.1%), Consumer Staples (3.2%), Utilities (3.0%) and Health Care (3.0%). Industrials (2.2%) and Materials (1.9%) also outperformed the broader index. Sectors that lagged the broader market included Telecommunications (-1.6%), Financials (0.0%) and Consumer Discretionary (0.9%).
The Real Estate sector was the best performer in November, notably for the first time since January 2016. The sector rebounded following an extended period of underperformance as 10-year bond yields fell sharply during the month. Key contributors to sector outperformance were Westfield (7.9%) and Scentre Group (5.2%).
The Energy sector outperformed as the oil price rose during the month, following the agreement between OPEC and Russia to extend production cuts another none months to the end of 2018. Sector gains were driven by Origin Energy (12.5%) and Santos (12.9%). Both companies hosted investor days during the month, highlighting growth opportunities and a focus on lowering debt levels which pleased investors.
The Consumer Staples sector outperformed on the back strong performances from Wesfarmers (5.1%) and Woolworths (4.0%).
The Consumer Discretionary sector lagged, with Aristocrat Leisure (-6.6%) a key drag on performance. Despite Aristocrat reporting underlying earnings that were in-line with consensus, the market focused on the company’s acquisition of Big Fish Games, reacting negatively to the news.
Financials underperformed the broader market, largely driven by the banks. National Australia Bank (-6.5%), Westpac (-1.8%) and ANZ (-2.3%) were the key detractors, while the Commonwealth Bank (2.3%) bucked the trend having delivered a strong 1Q18 trading update. Meanwhile the diversified financial stocks and insurers were largely positive, offsetting some of the underperformance of the banks.
The Telecommunications sector was the worst performer, driven by sector heavyweight Telstra (-3.1%). The Telstra share price went backwards in November as the market was unimpressed following the company’s investor day. Concerns remain over the impact of the NBN roll out and the entry of a new mobile competitor in TPG.