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Investment Directors’ Bulletin
Edmund Brandt/Ed Walker December 2014

EQUITY MARKETS BOUNCE STRONGLY IN NOVEMBER, LED BY THE US
From early September to mid October the MSCI World and MSCI Emerging Markets indices completed a near 10% correction—the first since mid 2011. However, the recovery since then has been led by developed markets, particularly the US, while emerging markets (particularly when measured in US dollars) have traded broadly sideways with significant country variations. In November, the MSCI World and MSCI Emerging Market indices rose 2.9% and 1.1% in local currency terms, respectively. Among developed markets, Japan was the best performing market (up 6.2%). For the first time in seven months, Europe outperformed the US (up 3.7% against 2.6%). Australia was the worst performing developed market, declining 3.5% in local currency terms, suffering as resource prices (notably oil and iron ore) declined precipitously. We will discuss the impacts of the rising US dollar and falling oil prices in some detail below, but suffice to say this backdrop was negative for emerging economies, in aggregate. Generally we try to avoid spending too much time analysing the impacts of currency movements on market returns as investors have differing currency exposures. However, November is a notable exception. The continuing surge in the US dollar and the interaction with commodity prices has been profound. In developed markets all major currencies depreciated against the US dollar, most notably the Japanese yen, transforming a 6.2% return in yen terms into a 0.3% return in US dollars. Similarly, weakness in the Australian dollar led to negative returns of 6.3% in US dollars. Emerging market returns

in aggregate were -1.1% in US dollars, with Russian equities standing out,