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Equity markets were gripped by a buying frenzy in November under the dual effect of the US election results and the announcement of very good clinical results for several vaccines in development, write Guy Wagner, Chief Investment Officer at BLI - Banque de Luxembourg Investments, and his team, in their monthly analysis, ‘Highlights’.
Politically, the major news was the election of the Democrat Joe Biden as President of the United States in place of Donald Trump, “a result generally perceived as a signal that the United States would start to normalize relations with the rest of the world,” says Guy Wagner, Chief Investment Officer and managing director of the asset management company BLI - Banque de Luxembourg Investments.
Positive news on vaccines
On the health front, Europe seemed to be regaining control over the pandemic while cases continued to accelerate in the United States. However, these phenomena were soon overshadowed by positive announcements from several laboratories about the effectiveness of their vaccines, “which at last seem to suggest a timetable for ending the crisis in 2021. Pending a return to normal, the economic dynamics remain those of a global recovery hindered by a fresh round of lockdown measures in certain regions of the world.”
All major indices posted strong increases
Although equity markets rose sharply all over the world, it was the European markets – having been the most affected by the pandemic since the spring – which enjoyed the most dynamic rebound. “Abrupt sector rotations also took place, with investors sometimes aggressively selling the shares of companies that had done well in the Covid-19 crisis and rapidly switching to buy companies that had suffered most from the crisis,” underlines the Luxembourgish economist. At the end of a historic November in terms of the scale of the rise, all the major indices in the US, Europe, Japan and emerging markets posted strong, sometimes double-digit increases.
Shift away from German debt towards peripheral debt
In the United States, government bond yields remained surprisingly flat given November's euphoric environment, with bond market investors continuing to have faith that the Federal Reserve will hold interest rates at low levels. The yield on the 10-year Treasury note even dipped slightly over the month. “In the eurozone, government bond yields converged between countries as investors' risk appetite resulted in a shift away from German debt towards peripheral debt,” concludes Guy Wagner.
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