Markets dropped sharply towards the end of November, as the emergence of the Omicron variant spooked investors. There were echoes of March 2020 in the sector dispersion, with cyclical sectors like oil and airlines plunging double digits, while sectors like technology and healthcare held up stronger. While sharp, the moves need to be kept in context; the S&P 500 closed down on the month by -0.7%.


The UK economy managed to grow 1.3% in the third quarter, behind economist’s expectations and lagging most other rich countries. The economy remains slightly below its pre-crisis peak, whereas the US has already surpassed that level. Economists blamed supply chain disruption and staff shortages.

More than 25 energy companies have gone bust since the summer. The spate was caused by surging wholesale gas prices, which companies cannot pass on because of regulatory price caps. For customers there is little disruption, but it highlights how investors must be careful about exposure to commodity prices.

The Bank of England voted to keep interest rates unchanged. This was a tailwind to our UK gilt fund, which had an exceptionally strong month and delivered over 3%.


US inflation jumped to 6.2%, the highest rate in three decades. Economists differ on whether this is caused by demand (thanks to pent-up consumer savings and stimulus money) or supply (higher oil prices and supply chain disruption). While 6.2% is high, the number is heightened by base-effects that will drop out over the coming months. Meanwhile, jobless claims fell to their lowest level since 1969. Our US tracker fund provides diversified exposure to the US market, and was one of the best performers of the month, rising over 4%.

President Biden nominated Jay Powell for a second term as chairman of the Federal Reserve. Powell is a market-friendly choice who proved his independence by hiking rates despite Trump’s objections in 2018. He also won plaudits for the Fed’s swift response to the pandemic in early 2020.


Europe’s fourth Covid wave, combined with the uncertainties of the Omicron variant, has pushed governments on the continent to reimpose restrictions. We have yet to see hard economic data, but industry surveys show a slowdown in those areas with the harshest restrictions, such as Germany.

European stock markets struggled in November, but our Montanaro Better World fund managed to deliver returns of over 3% thanks to exposure to high-growth companies like the French drug pioneer Sartorius Stedim Biotech, which rose 10%.


Most emerging markets are experiencing lower inflation than developed markets. However, resurgent Covid cases in countries with low vaccination rates are hampering output. The effects have rippled out globally, particularly the semiconductor shortage, which has been worsened by factory restrictions in the Far East, where most are produced.

China, for years the powerhouse of global growth, is experiencing a notable slowdown. According to the FT, the correlation between GDP growth in China and other emerging markets fell since 2015 from nearly perfect (over 0.9) to almost invisible (under 0.2) today. Interestingly, the Chinese yuan is now behaving as a safe haven currency, like Japan’s yen and America’s dollar. This helped our Matthews China fund buck the trend and deliver over 3% on the month.


Early data suggests the initial worries over the Omicron variant were exaggerated, and markets have staged something of a bounce-back in early December. Even if vaccine efficacy is reduced, drug companies seem confident they could produce modified versions in months. Other new drugs also look likely to come online, which should further help hospitalisations. Overall, we think it unlikely that equities will face pressure like in early 2020.