Markets were rocked late in November following the emergence of Omicron, the new COVID strain that has been labelled a variant of concern by the World Health Organisation.
Shares in Australia were also led lower by Financials, after the Commonwealth Bank revealed that mortgage competition had intensified, resulting in tighter margins within the banking sector. Comments from Federal Reserve Chair, Jerome Powell, also added to the decline in Global Developed Markets after he suggested the word ‘transitory’ should be retired when describing the current state of inflation. Shares in Emerging Markets continued to underperform the rest of the world, while bonds rallied in November as investors flocked to their relative safety.
Emerging Markets Slump
In recent times we’ve seen a stark contrast between the performance of developed share markets and emerging share markets, with the latter being weighed down primarily by the poor performance of Chinese companies. You can read more about the China Evergrande saga here.
China has seen a sweeping regulatory crackdown across some of its key sectors such as Technology, Education and Property, as well as a resurgence in COVID cases, which has created a difficult operating environment for many of its businesses.
Transitory inflation – no longer
The Federal Reserve in the US now looks set to unwind its monetary support faster than expected following comments from its Chairman, Jerome Powell, last month. Powell expressed concern that inflation has been more persistent than anticipated due to lingering supply chain disruptions and low labour market participation, which has spurred both prices and wage growth.
With many commentators and experts now expecting US interest rates to start rising from next year, markets will be eagerly awaiting the Fed’s next meeting in December for additional guidance. In regards to how quickly the Fed might move will depend on what we learn about Omicron between now and then.
Given the run share markets have had this year, particularly in developed regions, any form of market uncertainty was always going to transpire into a share market pullback. However, the extent of the pullback will depend on how effective our available vaccines will be in preventing deaths, hospitalisations and additional lockdowns across major economies.
While it is still too early to understand the bigger picture, it is ever important for investors to maintain a diversified portfolio and remain patient with their long-term investment strategy, as we navigate through these uncertain times.