Property prices continued to fall across the nation with values declining a further 1.00% throughout November. This brings an approximate 7.00% (average of $53,400) decline since national property prices peaked in April of this year. Whilst this marks the seventh month of decline, the rate at which prices are declining is beginning to soften, with the 1.00% reduction being the smallest since the 1.60% monthly decline in August. 

Queensland again recorded the most significant monthly reduction, along with Tasmania with a 2.00% reduction in the Home Value Index. New South Wales, Canberra, Victoria and South Australia also experienced a reduction in value with 1.30%, 1.20%, 0.80% and 0.30% respectively. 

Western Australia remained stable, and the Northern Territory actually saw a small increase of 0.20% for the month. 

Record low vacancy rates of 1.00% have allowed unit prices continue to remain somewhat resilient, recording a 0.60% reduction for the month, bringing 4.70% reduction since prices peaked. 

The number of auctions held in the last weekend of November remained considerably below that of last year, with 2,393 auctions taking place as opposed to 4,251 last year. Whilst well below that of last year, the number of auctions were up 4.10% on the previous weeks results and were in fact the highest since a weekend in mid-June recorded 2,528 auctions. 

Clearance rates across the nation were also down on last year's figures, with only 61.50% of auctions clearing (down from 68.50% last year) indicating that vendors may not yet have responded to market conditions. Adelaide again recorded the highest clearance rate for the weekend with 65.90%, followed by Sydney (64.20%), Canberra (62.80%), Melbourne (61.00%) and Brisbane (47.40%). 

Source: Article, Report

Equity markets globally were stronger in November. In the US, the S&P 500 was up +5.4%, the Nasdaq rose +4.4%, whilst in the UK, the FTSE 100 increased +6.7%, boosted by its heavy mining weighting. On the ASX, the All Ordinaries Accumulation Index rose +6.4%. Utilities were the best performing sector, boosted by the takeover bid for index heavyweight Origin Energy, which was up +41% in the month. Materials was the next best sector, driven by investor optimism around China loosening its covid lockdown measures. Telco's, financials and technology all underperformed in the month. 

Bond yields declined in November as investors started to become more positive that the pace of interest rate hikes from central banks will moderate along with some signs that inflation has potentially peaked. In the US, the 10 year bond yield fell -30 basis points (bp) to close at 3.74%, whilst in Australia, the 10 year rate fell -23bp to 3.53%. During the month, the RBA increased interest rates by 25bp for the seventh month in a row, taking the official cash rate to 2.85%. The A$/US$ rallied in the month, up +6.0% to close at US$0.68. 

Commodity prices were broadly higher. Nickel rose +23%, whilst copper, aluminium and lead also rose between +6-8%. Thermal coal rebounded +11.4% after an -18% decline in October. Also of note, iron ore was up +25.6% after falling for seven months in a row. Brent crude oil fell -10.0%. 

As we look back on 2022, to describe the year as eventful seems an absurd understatement. So many events have dominated the news, each individually significant, and in aggregate almost overwhelming in consequence, both politically and economically.

Here's a reminder of just a few of those events:

• The invasion of Ukraine by Russia and the continuation of a war that many people thought would be short-lived.
• The sustained rise in inflation expectations to a 40-year high, ending the hope that inflationary conditions would be 'transitory'.
• The turmoil in the UK gilts, or government bond, market following the country's 'mini budget' in September that triggered a spike in long-term interest rates and havoc in pension funds that use a liability-driven investment approach.
• An escalation in geopolitical tension between the United States and its allies, with China.
• A global cost-of-living crisis with rising mortgage costs and unprecedented fiscal support measures for energy and food targeted at the most vulnerable in many countries.
• A slowdown in, or reversal of, growth expectations with regards to key tech companies leading to a significant loss of shareholder value and job cuts.

Climate crisis uncertainty

Yet all these things will be relatively short-lived in their impact (and manageable) when compared to the existential threat that continues to grow relatively unabated from our failure to make progress on constraining global warming to the agreed target of 1.5°C.

COP 27, the climate change conference held this year in Egypt, largely failed to expand on commitments made a year earlier with regards to phasing out fossil fuels, despite all the strong statements made around the necessity to do so.

The one major step forward was the agreement of a deal that has been sought for over 30 years to launch a fund for 'loss and damage' to support those nations most exposed to the consequences of climate change. But details and financial funding have not been agreed.

We can already observe more extreme weather events - notably the recent floods in Pakistan - which have devastating effects on impacted economies and contribute to the risk of a steady but dramatically expanded flow of migrants to other countries.

Don't give up

But, as the old saying goes, where there are challenges, there are also opportunities.

Here's where we see them:

• Tackling climate change, both in terms of mitigation and solution, will require trillions of dollars of investment each year for the next three decades at least;
• Reconfiguring supply chains (to shorten and make them more secure);
• Building security of energy and food supplies to rely less on a single supplier;
• Replacing inefficient infrastructure for transportation, energy supply and distribution;
• Funding the science and applied research needed to create the solutions not available today;
• Rebuilding Ukraine.

Reasons to be optimistic

It's easy to be overwhelmed by all the uncertainty. That said, we've also seen steady progress in many places that may offer an antidote to the gloom:

1. The investment industry is better equipped than ever to steward capital into productive assets that meet society's expectations of it.
2. Policy makers are finally seeking to unblock obstacles that constrain investment flows from long-term savings pools into infrastructure and patient-capital science-based assets.
3. Industry leaders are, at last, prioritising capital investment over share buybacks, particularly in Europe.
4. Employment prospects are strong, particularly for younger workers as many older workers who were close to retirement brought plans forward during the pandemic.
5. Many of the big trends that have caused concern are forecast to improve in 2023 - the inflation and interest rate outlooks will likely moderate next year; fiscal conditions are expected to remain supportive with major elections scheduled in 2024; China is expected to gradually remove Covid restrictions and re-open its economy.

2023 may well be a pivotal year for markets amid the economic challenges that remain. While these are clearly important, we mustn't take our eyes off potentially existential long-term issues.

Author: Sir Douglas Flint, Chairman of abrdn