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Investment commentary November 2016

Quick overview

  • Markets volatile after surprise Trump win
  • Australian and international shares weaker in October
  • Emerging markets outperform, with the Chinese economy and Brazilian shares gaining momentum

Uncertainty in the short term, so make sure you’re well diversified

The initial market reaction to Donald Trump winning the US presidency was volatile, with shares first selling off dramatically in Asia only to recover and post gains during the US timezone. This volatility is likely to continue in the short term but over time we should see them settle down as uncertainty abates and the focus returns to fundamentals.

Elections don't usually have much impact on the economy, but with both parties arguing for a focus on infrastructure leading up to the elections, we might see the long-awaited improvement in investment and the return of fiscal policy as a more influential contributor to economic growth.

As always we encourage investors to remain well diversified so they are better prepared to handle the volatility that comes with events such as these.

A good month for emerging market shares and high yield bonds

October was a challenging month in investment markets, with shares and bonds falling at the same time. Australian shares returned -2.17%, and bonds -1.28%. International assets did slightly better, with shares down -0.64% and bonds -0.90%, both on a currency hedged basis.

It is perhaps surprising that the only major asset classes to do well in October were those usually considered more risky – emerging market shares and high yield bonds.

China and Brazil take the spotlight in emerging markets

Emerging markets shares are those which are listed on the stock exchanges of less developed countries. A large proportion, around 70%, of these are listed in Asia, and the outlook for companies there has been looking up in recent times as the Chinese economy has regained momentum.

Brazillian shares have also been very strong, rising 11.2% in October to be up 41.5% year on year. As a large commodity exporter Brazil too has benefited from Chinese growth, but there have been significant positive developments on the domestic front and confidence is improving in both political and economic stability.

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