Cash

The UBSA Bank Bill Index returned 0.5% in November.

Australian Bonds

The benchmark UBSA Composite Bond Index (All Maturities) returned 0.7% in November outperforming both the UBSA Bank Bill Index (+0.5%) and the Lehman Global Aggregate Index (+0.6%). For the year to November the UBSA Composite Bond Index returned 4.8%. The best performing sectors, as measured by respective UBSA indices, were Government (+0.8%) and Inflation Linked Government Securities (1.4%). The worst-performing sector was Credit (+0.7%).

The RBA quarterly statement noted that despite the CPI increase to 3% for the year to September, the effect was likely to be "muted" as this would likely be offset by a "mild easing in the labor market conditions".

The 90-Day Bank Bill ended the month at 5.57%, indicating that the market does not appear to be pricing a rate rise in the near term.

International Bonds

The benchmark Lehman Global Aggregate Index returned 0.6% for the month of November, under performing the UBSA All Maturities Composite Bond Index (+0.7%). For the year to November, the Lehman Global Aggregate Index returned 6.6%.

In the United States, members of the Federal Open Market Committee (FOMC) cautioned on the "risks of going too far with the tightening process''. However, US fixed interest markets are currently pricing two further rate rises – one when the Federal Reserve meets on 13 December and again on the 31 January 2006.

The ECB issued a statement mid month which declared that "the Governing Council is ready to take a decision to move interest rates". The Euro yield curve rallied in short maturities in anticipation. The long end of the Euro curve finished marginally down on concerns that rate hikes could not be sustained if long-term growth became muted. It is unlikely that the ECB will be too aggressive as countries like France and Germany are only achieving moderate growth whilst Italy is still emerging from a recession.

In Japan, the Bank of Japan’s ("BoJ") Deputy Governor Kozumasa Iwata indicated in a recent policy address that the BoJ would not raise rates until CPI growth was above 1%. Currently the BoJ is forecasting that CPI will rise by 0.1% for the year to March 2006 and 0.5% the following year.

Australian Listed Property Securities

The benchmark S&P/ASX 300 Property Trust Accumulation Index returned 3.4% in November under-performing the broader Australian equity market, by 1.0%. For the three months to November the index had under-performed the broader equity market by 4.0%. The best performing sectors were Industrial (+4.2%) and Office (+3.5%). The worst performing sectors were Retail (+3.0%) and Diversified (+3.0%).

The best performing stock was Babcock & Brown Japan Trust (+8.7%), which since listing in April has risen 67%. Babcock & Brown Japan Trust manages a portfolio of eight office and four retail properties in central and greater Tokyo. The trust has benefited from rising property prices in Japan and improved investor sentiment towards Japan.

The outlook for the sector remains positive, yet there remain some lingering concerns about valuations and the changing nature of the Australian listed property trust market. Listed property trusts, which historically have displayed only limited correlation to the Australian equity market, are increasing becoming more ‘equity like’, through stapling, and use of leverage.

The benchmark S&P/ASX 300 Accumulation index rose 4.4% in November, offsetting the 4.0% fall in October. For the year to November the benchmark is up 22.5%. The best performing sectors were Energy (+5.9%), Materials (+6.0%) and Healthcare (+7.5%). The worst performing sector and the only one to record a negative was Telecommunications Services (-6.7%).

Large capitalisation stocks, as measured by the S&P/ASX 50 (+4.4%), outperformed small capitalisation stocks, with the S&P/ASX Small Ordinaries returning 2.9%. Within the energy sector this trend was significant, as investors rotated out of small ‘pure-play’ resource stocks towards larger diversified companies.

Current conditions suggest manager performance is not about being ‘growth’ or ‘value’ but rather the extent that a manager is exposed to (or believes in) the ongoing resources boom, global growth and benign inflation outlook.

Resources continued to outperform industrial stocks. Despite the decline in the oil price to $(US)56.4, stocks such as BHP Biliton (+5.4%), Woodside Petroleum (+10.6), and Oil Search (+5.5%) performed well. The price of gold rocketed to a 23 year high mid-month, ending slightly lower at $494.2. The resurgent gold price benefited Lihir Gold (+34.3%) and Newcrest Mining (+17.0%), the latter rallied on speculation of a takeover.

Telecommunications was the worst performing sector as Telstra fell (-8.6%).

 International Shares

The benchmark MSCI World Ex Australia (net div in $A unhedged) returned 4.3% in November with the hedged benchmark returning 4.4%. The Australian dollar had mixed performance rising against the UK Pound (+1.7%), Euro (+0.6%) and Japanese Yen (+1.5%) yet falling against the US Dollar (-1.16%).

The best performing markets was Japan (Nikkei 225: +9.3%), Germany (DAX: +5.4%) and the US (S&P 500: +3.5%). For the year to November the best performing markets are Japan (Nikkei 225: +36.5%) and Germany (DAX: +25.9%). Huge institutional investment inflows into Japan continue, with 66% of global fund managers surveyed by Merrill Lynch having an overweight position to Japan. The extent of the recovery is quite significant as indicated by the UFJ Mitsubishi announcement mid month that its profits would be up by 78% on the back of a resurgent economy.

The US equity market which had been the laggard for year to the end of October (S&P 500: +6.4%) delivered a strong return in November (+3.5%). Driving the return was increased consumer confidence (+3.4% month on month), new home sales growth (+13% month on month) and notes from the Federal Open Market Committee that indicated some members’ caution about continued rising rates.

Europe continued to be the strongest performing global region in terms of equity performance. Europe is currently undergoing a wave of M&A activity, which last month saw Spanish telecom group Telefonica bid for British mobile phone group O2. November saw a leverage buy-out of TDC, Denmark’s largest phone company for $US12 billion. This was the largest private equity deal in European history. British ports operator P&O also agreed in principal to a cash takeover from Dubia DP World for $US5.7 billion.

Global Emerging Markets

The MSCI Emerging Markets in ($A dividends reinvested) returned 9.3% for the month of November outperforming the broader share-market. Emerging markets were the worst performing asset class last month yet this month were the best performing. For the year to date global emerging markets have returned 39.0% versus the MSCI World Index return of 16.4% (unhedged). Traditionally this asset class tends to display greater leverage to the global economy, rising more swiftly on global economic optimism yet also deflating more sharply on signs of headwinds.

Despite ongoing fears about SARS and moderating Chinese economic growth (noted in last month’s report), Asia was the strongest performing emerging market region. The best performing markets within Asia were India, which advanced on better than expected GDP figures, and South Korea. Latin America was the weakest region over the month.