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Capital Markets Update: November 2022

NOVA Wealth1 December 2022

Market updates from November

In a Nutshell

International markets have seen fairly mixed performance as we move into the winter months. In the UK, markets initially took a hit in the days following the government’s announcement of new tax policies and bleak growth projections. However, they quickly recovered, showing a good level of growth over the month as a whole. In the US, the Fed announced the latest round of rate hikes; and tech stocks showed dramatically varied performance. The European Union continued to struggle to reach an agreement on a fuel price cap; and Chinese markets experienced dramatic recovery after several months of poor performance.

UK government announces new economic plan

In mid-November, Jeremy Hunt unveiled the government’s much-anticipated plan to combat the rising cost of living, energy price hikes, and the general economic slowdown seen over the last year. In his address to the House of Commons, Hunt acknowledged that the UK is in recession. He expects GDP to shrink by 1.4% over 2023, before rising by 1.3% in 2024. By 2027 the government expects growth to be back up to around 2.7% For context, GDP shrank by 11% in 2020; and grew by 7.5% in 2021.

However, Hunt stressed that the government is not solely to blame for this downturn, pointing instead to international factors including the COVID pandemic and Russian invasion of Ukraine. In response to the recession, the government plans to cut the additional rate threshold from £150k to £125k. Thereafter, the thresholds for income and inheritance tax will remain frozen until April 2028. Furthermore, in a break from Truss’s hard opposition windfall taxes, Hunt announced that the government will raise £14bn through additional levies on energy companies.

The UK energy market dipped in the days immediately following the statement, with Shell and BP shares falling by 3.9% and 4.2% respectively. However, they recovered quickly - by the end of the month BP was up 4.7% from the day of the announcement; and Shell by 1.5%. The wider UK market followed a similar pattern, dropping in the days following the announcement but recovering as the month went on. Across November as a whole, the FTSE100 was up nearly 6%; and the FTSE250 by around 7.2%.

Fed announces new interest rate hike

In the US, the Federal Reserve announced the fourth consecutive three-quarter percent hike in interest rates this year, marking the sharpest increase since the 1980s. The Chair of the Fed, Jerome Powell, acknowledged the rapid pace of rate rises, but also insisted that there are “no grounds for complacency in Fed policy”. He doubled down further, stating that he is “pleased that we have moved as fast as we have - I don’t think we’ve overtightened”.

While the NASDAQ index was up 6.5% over the month (and the S&P by 2.2%), the largest companies in the market had quite mixed performance. Facebook shares rose by over 19%; and Alphabet shares by just under 1%. However, Apple shares fell by around 7.5%; and Tesla shares plummeted by over 20%.

European energy crisis continues, and Chinese markets recover

Energy prices continue to rise dramatically across Europe as the Russian invasion of the Ukraine continues to put pressure on gas supplies. However, EU member countries have struggled to yet reach an agreement on a recent proposal for an energy price cap. While some countries including Belgium, Greece and Italy have been generally supportive; Germany, Austria, Denmark and others have criticised the plan, fearing it could restrict energy supply.

Chinese stocks rebounded over November, marking a change from months of underperformance as a result of Xinping’s stringent zero-Covid policies. The Hong Kong stock index showed historic growth of 20.3% - the largest monthly recovery in the index since the 2008 financial crisis. The Shanghai stock index also grew around 6.10%, and the CYN-USD exchange rate recovered around 3% (although has still fallen around 10% YTD).

Looking ahead

While performance has been mixed across global markets, November has seen a slightly more positive trend than in previous months. However, in the UK the government’s outlook on growth is fairly negative - so we can likely expect to see some continued volatility over the coming months.

That being said, over a slightly longer time frame we can still expect to see good opportunities for growth, which as we've seen in the recent positive months can come quickly and somewhat unexpectedly - so investors should try to stick to a robust long-term financial plan and remain diversified in their investments.

In the meantime, see here for more details on the Autumn Statement and how it may affect you; and here for tips on how to cope with the stresses of market volatility.

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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