November was quite calm for the financial market, although in the first half of the month one could notice increased volatility, which was mainly related to the technical correction upon an extremely intense rally in October.

During the first week of the month, most stock markets continued to grow by inertia expecting the expansion of the stimulating monetary policy by the ECB, Bank of Japan and People's Bank of China, on one part, and a rather soft declamation regarding the increase of the interest rate by the FRS, on the other part. However, this peace and harmony were disturbed by US labour market data, which appeared to be very strong and exceeded analytics’ anticipations. The data extremely increased the probability of the rate increase in the USA already in December and triggered highly negative reaction of market participants. As a result, quite rapid and significant correction took place on the major securities markets. The American securities market and stock markets of emerging countries turned out to be the worst hit, but Europe and Japan demonstrated respectful stability, which once again proved how significantly investors’ mood depends on expected actions of monetary authorities of the largest countries. The further events confirmed this assertion. A new portion of USA macroeconomic data was not so impressive. Although it did not reduce the expectations of the rate increase in December, it contributed to an assumption (ascertained by FRS representatives from time to time) that rates will go up moderately and gradually, which made the tense on markets go away and brought buyers back. Therefore, the major securities markets not only did not suffer losses at the end of the month, but also demonstrated a positive yield. The performance of the German DAX was particularly outstanding, as it reached an increase of 5% in addition to its increase of 12% in October; the Japanese Nikkei-225 also showed a good result (+3.5%).

The American market demonstrated poorer results by breaking even at the end of the month. However, such outcome is not bad at all, taking into consideration the preceding harsh and rapid growth. The only one again excluded from this feast of life was the stock market of emerging countries, which showed a loss of 4%. The reason thereof was the same factors that keep putting pressure on the market during the whole year, namely, low prices on raw material markets, the fall in the exchange rate of currencies against the US dollar, as well as the political situation. Rampant terrorism and the serious incident between Turkey and Russia regarding the shot down SU-24 did not increase investors’ level of optimism either.

Stock fund managers maintained a strategy of keeping. In the previous comment we noted that the increase initiated in October, in our opinion, would turn out to be a mid-length one, which is actually happening so far. Consequently, the stock funds managed by ABLV Asset Management, IPAS demonstrated profits equal to the market return. Now, markets are awaiting the meetings of the ECB and FRS, the result of which may affect investors’ mood. Further actions of managers will depend on events on stock markets following up the two meetings.

On the global US dollar- and euro-denominated bond market November outlined a variety of trends, which is primarily due to expectations of possible actions of the ECB and FRS. The positive declamation of the head of the ECB concerning the expansion of the programme of quantitative easing provided significant support to euro-denominated bonds. New stimulating measures will be possibly assumed already in December. In this context, European bonds continued their growth initiated in October. Such dynamics resembles the rally in the first half of the year when new steps for stimulating the economy of the euro area were announced as well. The US dollar-denominated bond market, in its turn, experienced light correction upon good growth in the previous month. The widely discussed increase of the interest rate by the FRS in the nearest future keeps putting pressure on dollar-denominated bonds. The fact of the rate increase itself certainly raises no doubts, while at the same time speculations regarding the period when the new rate will enter into force and its value keep spreading. If upon the FRS meeting in September the market was ready to expect the first increase in 2016 only, November came out with another major swing. The data presenting extremely good condition of the labour market made the expectations regarding the increase towards the end of the year to come back, which led to the growth of US government bond yields and two-year Treasury yield; the latter reached its maximum value for the past 5 years. This facilitated a drop in prices for High Grade government and corporate bonds of emerging countries. The High Yield segment keeps experiencing negative influence of low prices for power resources combined with the tense geopolitical situation and nervousness upon the series of terrorist attacks. Bonds of such countries as Egypt and Tunis were hit the most. Latin America, especially Brazil, continues to face corruption scandals. In brief, the situation is extremely negative over there, which certainly does not encourage the flow of investors.

Nevertheless, the common results turned out to be not so bad. At the end of the month, the value of dollar-denominated bond funds (excluding ABLV High Yield CIS USD Bond Fund) managed by ABLV Asset Management, IPAS decreased by 0.1-0.5%, which is very little considering the growth by 2-3% in the previous month. Russian bonds under conditions of shortage and retirement keep looking better than the market, notwithstanding the recent events (cheap oil, the conflict with Turkey, the prolongation of sanctions, etc.). Bonds issued by Kazakh issuers joined Russian bonds in this context, as the President of Kazakhstan is planning large-scale privatization of government companies, as well as JSC NC KazMunayGas launched a large buy-back operation on its bonds.
As to euro-denominated bond funds, their value increased by 0.7-1.1%, which corresponds to the general market return.

A strategy of keeping is maintained in bond funds. December historically is one the months of the lowest liquidity. Bearing in mind that the liquidity is being far from perfect during the whole year, it is almost impossible to sell or buy something at market prices in December. Generally speaking, the market has already gone on the winter break. Therefore, increased volatility might be expected, which would not precisely reflect the actual general profitability level. In our opinion, High Yield segments in the corporate sector of advanced countries as well as the sector of emerging countries are currently being underestimated, and for this particular reason these sectors have the biggest potential of growth in Q1 2016.

Mutual funds’ return as at 30.11.2015:

¹ Except ABLV Multi-Asset Total Return USD Fund and ABLV Emerging Markets Corporate USD Bond Fund, for which return is calculated since funds’ inception date.

Additional information is available at ABLV Bank home page in the section “ABLV Mutual Funds”.