November 2021: comeback of Covid-19

November 2021 started well for relatively risky asset classes such as equities, but towards the end of the month, the combination of a COVID-19 resurgence in large parts of Europe and the discovery of a new coronavirus variant in South Africa rattled investor sentiment.

With the onset of autumn, the coronavirus has made a strong comeback in Europe especially, despite the relatively high vaccination rates here. This has now led various European countries to reinstate lockdown measures and other contact restrictions. It will come as no surprise, therefore, that European equities in particular performed poorly in November, with the MSCI Europe index posting a -2.5% yield. Towards the end of the month, the discovery of the Omicron strain of the coronavirus in South Africa only added to the pressure on prices, not just in Europe but on other equity markets as well. The MSCI Emerging Markets and MSCI Asia Pacific indices, for example, stayed only just ahead of European equity markets, with yields of -2.4% and -2.0%, respectively, for the full month of November. Only the US equity market managed to end the month in the black, but only just, with a yield of +0.5% for the MSCI North America index. This was in part attributable to the rate of exchange of the US dollar, which gained 1.7% against the euro in November.

Government bonds were the best performing asset class in November

Meanwhile, adverse COVID-19 developments and falling equity market prices pushed bond market yields further down. This made government bonds the best performing asset class in November, with a positive yield of 1.7%. For the full year of 2021, however, European government bonds still constituted the worst performing asset class, shedding 2% since the beginning of 2021. European investment grade corporate bonds also benefited from lower interest rates, recording a modestly positive monthly yield of 0.2%. The riskier high yield corporate bonds suffered more from investors’ dampening risk appetite and ended the month with a negative yield of -0.5%. Finally, European listed property – an asset class relatively susceptible to interest rate changes – steered a middle course between equities and government bonds, delivering a monthly yield of 0.0% in November.