November market wrap: Inflation, miners and the return of virus fears
Five charts to sum up the month.
Mentioned: PEXA Group Ltd (PXA), AGL Energy Ltd (AGL), BHP Group Ltd (BHP), Fortescue Ltd (FMG), G8 Education Ltd (GEM), Rio Tinto Ltd (RIO), Seven West Media Ltd (SWM), Woodside Energy Group Ltd (WDS)
November was on track to be a steady month for most share markets before the Omicron variant hit. Markets dipped at the end of the month as investors feared the return of lockdowns and economic disruptions. Renewed covid jitters overshadowed a month that also featured drama at the US Federal Reserve, a comeback for Australian miners and more merger and acquisition activity on the ASX.
In today’s Charts of the Week, we recap November’s highlights here and overseas, put the market dip in perspective and highlight the most undervalued names of the month.
Omicron and Powell send global markets lower
After strong start to the month, global share indexes fell in the final week as investors worried the new coronavirus variant Omicron could stymie the recovery.
Global indexes fell as much as 4% on Friday 26 November. The Morningstar US down 2.2% while the S&P/ASX 200 fell 1.7%
After a brief rebound, shares dipped on the last day of the month after US Federal Reserve Chairman Jerome Powell suggested the bank could accelerate the end of its $120 billion-a-month bond buying program in the face of inflationary pressures.
The comments came weeks after Powell was nominated by President Biden for a second term, ending weeks of speculation he would be replaced by the more dovish board member Lael Brainard.
Several more weeks of data is needed before the impact of Omicron is known, but history gives cause for optimism, says Jun Bei Lieu, a portfolio manager at Tribeca Investment Partners.
“The share market has traded through all the previous variants and continued to push new highs,” she says. “In my view we will continue to do the same with this one.”
She adds the major vaccine makers believe they can adapt their products to the new variants within 100 days.
Miners rise on the ASX while energy dips
Australian miners staged a comeback in November as energy stocks retreated from the highs notched in October amid spiralling fuel prices.
The Morningstar Australia mining subsector rose 6% for the month. Miners Rio Tinto (ASX: RIO), BHP (ASX: BHP) and Fortescue Metals (ASX: FMG) added between 8% and 24%.
The energy sector shed almost 9% with heavyweights such as Woodside Petroleum down roughly the same amount.
The decline tracked the steady move down in oil prices. The global benchmark Brent Crude was 17% lower for the month including a 12% one-day fall last Friday. Iron ore prices bottomed out mid-month around US$ 91 before crossing the US$100 mark by month end, finishing back where they started.
November’s dip comes amid a positive period for the Morningstar Australia index. Last month was only the third in the last 18 where the Morningstar Australia index finished lower, following declines in September of this year and last.
The Morningstar Australia Index maintains a total return of 15% year to date.
Biggest movers on the ASX
Mining companies, a media conglomerate and a digital conveyancer were among the five biggest movers on the ASX under coverage, all clocking in jumps north of 14%.
Seven West Media (ASX: SWM) topped the list, rising 19% after successfully refinancing its debt and announcing the acquisition of Prime Media Group (ASX: PRT).
Morningstar director of equity research Brian Han backs the acquisition calling it “logical” for Seven to absorb its regional TV partner. The new debt deal increases the media company’s lending facility at a lower interest rate, and Han says, “the days of fretting about Seven’s balance sheet are over”.
Fortescue Metals came in second, rising just short of 19%. Morningstar maintains the iron ore miner is overvalued, and expects share price decline on the horizon.
Pexa (ASX: PXA) numbered among the top five as its major shareholder, Link Holdings (ASX: LNK), received yet another buyout offer in the ongoing saga to acquire the financial services administrator.
Most undervalued stocks of the month
The most undervalued stocks of November include Morningstar best ideas AGL Energy (ASX: AGL), G8 Education (ASX: GEM) and Woodside Petroleum (ASX: WPL).
The oil and gas company closed out the month by greenlighting its long awaited $16.5 billion gas mega project last week and confirming its planned merger with BHP’s petroleum business.
Investors have the possibility of December’s “Santa Rally” ahead of them – the tendency of the share market to close the last month of the year in the green.
Data from Fidelity International and Morningstar shows that only 7 times in the past 28 years has the S&P/ASX200 delivered negative returns in December.