Global Market Commentary- November 2022

Global markets continued their momentum in an eventful November after rebounding in October from the September year-to-date lows. The MSCI World Islamic Index and the Dow Jones Sukuk Index both rose in November by 7.9% and 1.2%, respectively.

Markets remained relatively flat in the first third of the month as investors looked for signals that would alleviate some economic uncertainty. Initial cautionary signs came in the form of a 75 basis points interest rate hike by the Federal Reserve to its highest level in the US since the onset of the 2008 Global Financial Crisis, with no accompanying assurances of slowing the pace, realizations that the Bank of England would follow suit with a 75 basis point hike for the first time in 33 years, and word of Apple expecting to reduce iPhone 14 production due to softer demand and supply problems in China.

US markets experienced a surge of activity, stemming first from the US midterm election results and then from the CPI print for October. With the initial midterm results unclear, markets reacted shakily, but the picture emerged of a stalled Washington agenda accompanied by a positive inflation surprise with a lower-than-expected increase in CPI, indicating that the aggressive Fed tightening was working without the need for more fiscal interventions. This encouraged market participants, and both US equities and treasuries rallied by the middle of the month. 

The month was also capped off by a well-received speech by Fed Chairman Jerome Powell, who suggested that the Fed may slow the pace of interest rate hikes in December, which pushed market prices even higher. Overall, the S&P 500 gained 5.4% for the month. 

Elsewhere in the world, as November progressed, market participants latched onto other positive signs that global economic conditions may turn out better than expected, such as protests against zero Covid policies in China fueling expectations that the country will ease controls and reopen its economy, along with economic indicators showing Euro-area inflation finally beginning to slow down. Many people found it telling that Warren Buffett invested $5 billion in Taiwan Semiconductor Manufacturing, causing this sector to rebound as well. Not to go unnoticed: he has also overweighted his Japanese equity holdings. 

Overall, global equities outperformed US equities in November, with the MSCI All Country World Index ex-US rising 11.6% for the month, recovering some of their earlier-year outsized losses compared to the US markets. 

A major headline throughout the month was the collapse of FTX, a cryptocurrency exchange on which derivatives were traded in large volumes. While the broader markets were unaffected by the situation and the ensuing scandal, one key takeaway was gold’s continued superiority as a store of value over cryptocurrency. With the US dollar falling and interest rate expectations being lowered, the relative attractiveness of gold as an asset increased significantly, with gold securities rising 7-8% for one of its strongest months in recent memory.

Looking ahead, the market outlook is mixed, with some suggesting that the worst is behind us while others claiming that the worst may be yet to come. Market commentators have noted that the amount of debt that exists in the economy, as well as the amount of money being printed to service those debts has reached unsustainable levels, and that valuations may be very sensitive to any earnings declines in the coming quarters. 

In regards to these valuation risks, companies with low levels of debt on their balance sheet, such as those screened using Shariah principles, may be better positioned in the coming quarters for an economic slowdown. It is worth noting in this context that Shariah-compliant debt would not affect valuation sensitivity any less than conventional debt, nor does the nature of a company’s assets that are being leveraged determine its ability to service its debts with its earnings.