November In Review: Valuation Concern Trumped

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Australian equities underperformed US peers in November but outperformed most of the rest of the world, led by Technology and Financials.

-Trump’s election victory triggers rally for US stocks
-Australia gains too, but Europe and EMs pull back
-Commodities had a hard time, yet again
-Smaller Caps catch a bid
-Investor sentiment might be too euphoric

By Rudi Filapek-Vandyck

November 2024 opened amid general investor trepidation.

Equities had performed above expectations and valuations, in particular in the US, were seen as “full”, if not worse, generally and there was that election nobody genuinely knew what to expect from.

But Donald Trump won all the swing states and life was good and glorious and another rally ensued.

Traditionally, November is the best performing month both for US equities and for the local ASX, but this time November proved a really good month for both markets.

Compensating for a slight retreat in October, the ASX200 returned 3.8% in November (total return), despite closing the month on a slight negative footing. Outperformers, yet again, were local technology stocks, partially on mirroring moves in the US, partially on strong results released by the likes of TechnologyOne ((TNE)) and Xero ((XRO)).

Pro Medicus ((PME)) kept announcing new contract wins and its shares rallied by 29.29% in the month. That wasn’t even good enough to be the number one best performer for the market or the sector, go figure!

NZ-based Gentrack Group ((GTK)) also released a stronger-than-forecast result and its shares jumped by 42%. Weebit Nano ((WBT)) shares gained close to 36%. EML Payments ((EML)) shares surged more than 50%. Catapult International ((CAT)) saw its shares appreciate by more than 40%.

Needless to say, despite all the trepidation about elevated valuations for growth stocks, investor portfolios with exposure had an excellent time in November, both locally and in the US.

Sigma Healthcare shares surged no less than 47% on news the regulator would not block the merger with Chemist Warehouse. That “merger” (read: reverse take-over) still requires approval from shareholders and the Federal Court.

Commodities Out Of Favour

Not so pleased were those investors who’d piled into energy and commodities companies on expectation that China would have brought out the big stimulus bazooka by now. It didn’t and resources stocks were among the big losers for the month, as they have been for most of 2024 to date.

Gold producers, uranium, battery materials, iron ore, rare earths and mineral sands; none of them offered much to smile about in November.

Year-to-date Energy and Materials are the worst performing sectors in Australia, by a mile, with Consumer Staples the only other sector that is still in the negative for calendar year 2024. Agriculture outperformed in November.

Behind Technology, local Financials –both banks and insurers– turned in the second best performance last month.

Global Performance Is Mixed

Alas, Australia’s performance in November was yet again handsomely beaten by equivalent indices in the US, and in Canada too. The S&P500 added 5.9% for the month, with Consumer Discretionary the strongest performing sector.

The positive news is most other international markets performed a whole lot worse. Europe continues to struggle with its economic recovery and democratic institutions, while Emerging Markets retreated on the prospect of Donald Trump’s America First policy approach, a firming US dollar, and the absence of more stimulus from China.

Smaller cap stocks sprang to life after the US election, with smaller cap growth stocks outperforming in the US.

The MSCI Europe retreated by -1.7% in November, dragged down by political uncertainty in France where the CAC40 dropped by -4.2%. Japan’s Topix only gained 1.2%. Markets in Brazil (-7.2%), Korea (-5.2%) and China (-0.3%) were all worse off.

What About Valuations?

The USD Index, nicknamed Dixie (DXY), surged to a two-year high in November. In response, copper turned into one of the biggest losers. The Australian dollar entered December above US65c but has come under pressure since.

Quant analysis conducted by analysts at Morgan Stanley suggests equity valuations for the S&P500 might be stretched the most at this point in time when measured against the index’s range over the past twelve months.

No surprises, Emerging Markets equities, materials stocks and value companies are all trading well off from their twelve month’s range highs.

Financials, not technology, is currently the sector valued the highest on the same measurement, which won’t surprise anyone who has been observing banks in Australia.

Price charts for respective indices picture a continued uptrend for US equities into year-end, whereas Europe and Japan seem to be flatlining instead, with Emerging Markets equities trending lower.

On a simple forward-looking PE, the S&P500 is now trading above 22x with comparable multiples between 11-14x for Europe, Japan and EMs. The ASX200 has entered December equally on an historically elevated 18x FY25 EPS forecast (consensus).

Not widely publicised is that analysts’ forecasts are now exhibiting a negative trend for all regions, including the US (albeit in much milder form than elsewhere).

Consensus forecasts in Australia see FY25 EPS growth below 1% currently (0.9% to be precise) but Macquarie’s forecasts, which are more downbeat for the Resources sector, see the average EPS slumping by -4.8% for the running financial year, which would be a worse outcome than the -4.3% recorded for FY24.

Throughout all the volatility, US ten year yields are around 4.20% (1.90% in real terms, i.e. when corrected for inflation). Global bonds marginally outperformed Australian bonds, as measured by Morgan Stanley. With the RBA stoically on hold, the local market is not pricing in any moves until much later in 2025.

The Aussie ten year yield sat at 4.34% by the end of the month.

With various measurements of investor sentiment suggesting the overall mood could be described as “bullish”, maybe even as “euphoric”, Morgan Stanley’s proprietary Market Sentiment Indicator has turned negative.

Macquarie’s FOMO Meter, designed to measure market sentiment, has risen to 119, suggesting, in Macquarie’s own words “‘little scope for more bullish sentiment to lift equities”.

Seasonality suggests the Australian share market should outperform US indices in December and January, so that will be an interesting development to watch, in particular if the US market would temporarily stumble.

History suggests, under such a scenario, Australian equities might still underperform, regardless.

ASX100 Best and Worst Performers of the month (in %)

Company	Change	Company	Change
PME – PRO MEDICUS LIMITED	29.29	PDN – PALADIN ENERGY LIMITED	-25.49
SQ2 – BLOCK INC	23.84	PLS – PILBARA MINERALS LIMITED	-16.14
TNE – TECHNOLOGY ONE LIMITED	23.66	MIN – MINERAL RESOURCES LIMITED	-14.64
CPU – COMPUTERSHARE LIMITED	20.89	LYC – LYNAS RARE EARTHS LIMITED	-9.47
TLX – TELIX PHARMACEUTICALS LIMITED	18.20	NEM – NEWMONT CORPORATION REGISTERED	-8.27

ASX200 Best and Worst Performers of the month (in %)

Company	Change	Company	Change
SIG – SIGMA HEALTHCARE LIMITED	47.45	PDN – PALADIN ENERGY LIMITED	-25.49
PME – PRO MEDICUS LIMITED	29.29	BGL – BELLEVUE GOLD LIMITED	-21.23
WEB – WEB TRAVEL GROUP LIMITED	27.79	BOE – BOSS ENERGY LIMITED	-21.22
SQ2 – BLOCK INC	23.84	WAF – WEST AFRICAN RESOURCES LIMITED	-17.39
TNE – TECHNOLOGY ONE LIMITED	23.66	SGR – STAR ENTERTAINMENT GROUP LIMITED	-16.67

ASX300 Best and Worst Performers of the month (in %)

Company	Change	Company	Change
SIG – SIGMA HEALTHCARE LIMITED	47.45	RSG – RESOLUTE MINING LIMITED	-46.34
GTK – GENTRACK GROUP LIMITED	42.03	PMT – PATRIOT BATTERY METALS INC	-29.49
VUL – VULCAN ENERGY RESOURCES LIMITED	37.60	INR – IONEER LIMITED	-27.59
WBT – WEEBIT NANO LIMITED	35.96	WC8 – WILDCAT RESOURCES LIMITED	-27.27
MSB – MESOBLAST LIMITED	34.09	SYR – SYRAH RESOURCES LIMITED	-26.67

ALL-TECH Best and Worst Performers of the month (in %)

Company	Change	Company	Change
EML – EML PAYMENTS LIMITED	50.75	NXL – NUIX LIMITED	-13.44
GTK – GENTRACK GROUP LIMITED	42.03	4DX – 4DMEDICAL LIMITED	-13.21
CAT – CATAPULT GROUP INTERNATIONAL LIMITED	40.46	DUG – DUG TECHNOLOGY LIMITED	-10.22
WBT – WEEBIT NANO LIMITED	35.96	OFX – OFX GROUP LIMITED	-9.25
PME – PRO MEDICUS LIMITED	29.29	FND – FINDI LIMITED	-7.66

All index data are ex dividends. Commodities are in USD.

Australia & NZ

Index	30 Nov 2024	Month Of Nov	Quarter To Date (Oct-Dec)	Year To Date (2024)
NZ50	13066.920	3.39%	5.18%	11.01%
All Ordinaries	8699.10	3.29%	1.88%	11.11%
S&P ASX 200	8436.20	3.38%	2.01%	11.14%
S&P ASX 300	8367.50	3.29%	1.93%	11.04%
Communication Services	1691.60	5.40%	6.20%	6.51%
Consumer Discretionary	3942.70	6.74%	2.70%	21.68%
Consumer Staples	11710.00	1.00%	-6.06%	-4.88%
Energy	8601.20	-0.67%	-5.78%	-19.03%
Financials	8987.30	5.87%	9.32%	33.77%
Health Care	45740.60	2.87%	3.78%	8.03%
Industrials	7667.50	5.72%	2.96%	11.68%
Info Technology	2866.90	10.38%	5.50%	56.41%
Materials	16891.20	-2.72%	-7.78%	-13.33%
Real Estate	4044.90	2.51%	-0.16%	20.83%
Utilities	9089.70	9.07%	1.18%	11.13%
A-REITs	1846.30	2.48%	-0.10%	22.89%
All Technology Index	3964.00	12.56%	14.11%	47.14%
Banks	3774.20	5.69%	9.69%	35.79%
Gold Index	8928.70	-7.20%	2.38%	21.19%
Metals & Mining	5475.10	-4.04%	-8.62%	-15.33%

The World

Index	30 Nov 2024	Month Of Nov	Quarter To Date (Oct-Dec)	Year To Date (2024)
FTSE100	8287.30	2.18%	0.61%	7.16%
DAX30	19626.45	2.88%	1.56%	17.16%
Hang Seng	19423.61	-4.40%	-8.09%	13.94%
Nikkei 225	38208.03	-2.23%	0.76%	14.18%
DJIA	44910.65	7.54%	6.10%	19.16%
S&P500	6032.38	5.73%	4.68%	26.47%
Nasdaq Comp	19218.17	6.21%	5.66%	28.02%

Metals & Minerals

Index	30 Nov 2024	Month Of Nov	Quarter To Date (Oct-Dec)	Year To Date (2024)
Gold (oz)	2661.80	-4.88%	-0.73%	30.19%
Silver (oz)	30.68	-9.61%	-3.85%	25.84%
Copper (lb)	4.1315	-5.24%	-10.16%	8.50%
Aluminium (lb)	1.1674	-0.88%	-1.62%	20.07%
Nickel (lb)	7.2534	1.89%	-5.41%	-2.47%
Zinc (lb)	1.3731	-1.32%	-0.93%	22.10%
Uranium (lb) weekly	77.50	-4.32%	-5.49%	-9.88%
Iron Ore (t)	103.35	-0.70%	11.15%	-25.23%

Energy

Index	30 Nov 2024	Month Of Nov	Quarter To Date (Oct-Dec)	Year To Date (2024)
West Texas Crude	68.88	-0.30%	0.35%	-6.68%
Brent Crude	72.68	-0.04%	1.59%	-8.30%

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