• Wealth management
    • Strategy and structure
    • Risk management
    • Aged Care

November saw a pause in global equity markets after a strong six-month rally, with a modest decline of 0.19%. Surging capex and inter-related transactions within the AI ecosystem heightened fears around the optimistic earnings assumptions built into the valuations of many AI-related stocks. Despite a strong earnings result Nvidia was down more than 12 per cent in the month while Microsoft was off 5 per cent. The less profitable stocks, which had previously run hard in the recent AI-related rally, sold off even more sharply. This re-assessment and profit-taking within parts of the equity market extended to other instruments such as bitcoin, down more than 30 per cent from its peak.

The Australian equity market once again underperformed global markets, largely due to the ongoing repricing of interest rate expectations as inflation proved more persistent. The ASX 200 fell 3.1 per cent over the month. Large cap stocks continue to feel the brunt of weak earnings growth and poor earnings guidance with the ASX50 index down 3.3 per cent in November compared with a 0.3 per cent gain for Mid-caps.
 
After strong performance in recent months, emerging markets had a setback in November, down 2.4 per cent in USD terms. For the year to date, Emerging markets have managed to return 29.7 per cent in USD terms, or 22.4 per cent in AUD terms.
 
With equity markets under pressure and bond yields mostly lower in the US, the more defensive and rate sensitive sectors outperformed in November. Global REITs rose 2.1 per cent during the month, taking the year-to-date return to 9.1 per cent. Global listed infrastructure also rose, up 3.2 per cent to lift the return in 2025 to 13.8 per cent.
 
Australian 10-year bond yields continued to rise as higher inflation and a recovering economy prompted markets to fully price in a rate hike over the next year. The 10-year yield ended the month at 4.53 per cent while the 2-year yield ended at 3.81 per cent, up more than 50 basis points from the lows in September. Markets are now factoring in a 100 per cent chance of a 25-basis point rate hike by late 2026. The October CPI data was worse than expected, showing a 3.3 per cent core inflation rate while recent NAB business survey data and the September quarter GDP release point to a broadening out of activity, driven by increased household spending and private investment.
 
Share markets remain at risk of further corrections given stretched valuations, risks around US tariffs and an AI bubble and the softening US jobs market. But with Trump pivoting towards more consumer friendly policies, the Fed still likely to cut rates further and the AI boom likely to go for a while yet, shares are likely to provide reasonable gains on a 6-12 month horizon. A return to profit growth should also support further gains in the Australian share markets even though the RBA may have finished cutting rates.
Bonds are likely to provide returns around running yield.
 
Unlisted commercial property returns are likely to be okay as the “work from home” damage to office prices is behind us.
 
Cash and bank deposits are expected to provide returns of around 3.5%.
 
The $A is likely to rise as the interest rate differential in favour of Australia widens as the Fed cuts and the RBA holds and possibly hikes. Undervaluation should support it on a medium-term view with fair value around $US0.73.
 
**Important Note**

While every care has been taken in preparing this document, Farrow Hughes Mulcahy makes no representations or warranties as to its accuracy or completeness, including forecasts. Past performance is not a reliable indicator of future performance. This document provides general information only and does not consider individual objectives or financial situations. Professional advice should be sought before making investment decisions.
 
Source: AMP Capital, Zenith.