We share our latest observations on global asset markets regarding T8 Energy Vision

Global equity markets recovered in November after three consecutive months of negative returns. The ‘risk-on’ mood in November was evident across all geographies, with world equities rallying by 9.4% (all movements are expressed in US dollar terms, unless otherwise stated) after falling by 9.3% from August to October. Europe was the best performing region (+10.8%) followed by the United States (+9.1%), while the Asia Pacific region lagged (+6.9%) due to weakness in China equity markets. Hong Kong and China are the worst performing equity markets on a year-to-date basis, as the Chinese economy continues its slow recovery from COVID-19 lockdowns and faces uncertainty related to its troubled property sector.

The Clean Energy Index followed the equity market higher, rising by +7.7% as small cap companies (+8.8%) matched the return of large caps (+9.0%). However, on a year-to-date basis, small cap companies lag large caps by 23.4% due to their typical sensitivity to higher interest rates.

Growth stocks outperformed value companies for a second consecutive month (by 3.6%), increasing the gap on their year-to-date outperformance to 32.2% as high-growth Technology stocks rallied by 12.7% in November (up over 50% year-to-date). As a result, the price-to-earnings multiple for Technology companies now sits 2 standard deviations above its long-term average (31.6x).

The utilities sector, which features significantly in the clean energy universe and is typically associated with low volatility, posted a second consecutive month of positive returns (+4.5% in November) after falling heavily in September due to its sensitivity to rising bond yields. It continues to be the worst performing sector on a year-to-date basis (-11.7%) but one of the most attractively valued.

The conventional energy sector was the worst performer for a second consecutive month, falling by another 1.6% (after a 6.1% slide in October) as the price of oil continued to decline (-5.2%) due to concerns around a weakening global economy, levels of supply, and rising geopolitical risks.

One of the main catalysts for the equity market recovery (after three consecutive months of equity market drawdowns) was a growing view that interest rates may have peaked in the United States. Weaker economic data out of the United States and cooling inflation increases the likelihood of monetary easing (rates cuts) in 2024. In response, investors began buying US Treasury bonds in November, increasing their duration, and sparking a bond market rally which saw 10-year and +20-year yields falling by 60 bps and 56 bps, respectively (2 standard deviations downward move in yields), with the 10-year yield falling to 4.3%. The correlation between equities and bonds remained elevated (99th percentile), as both asset classes posted positive returns for the month.

In currency markets, investors fled the safety of the US dollar as risk appetite improved which saw the trade-weighted US dollar index retreat by 3.0%, a near 2 standard deviations move lower against other major currencies.