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The global equity markets were impacted by the following significant events in November 2021.

  1. The US Federal Reserve (“the Fed”) Chair acknowledged that the US economy was recovering and that the pace of supportive asset purchases will be reduced. Starting in December 2021, the Fed will start to curtail the pace of asset purchases from its current level (US$80 billion in US treasuries and US$40 billion in agency securities), by US$10 billion and US$5 billion respectively. This tapering will reduce cash liquidity in the financial system and potentially impact equity prices.

2. In late November, a Covid-19 variant was isolated in South Africa. The Omicron mutation has spooked some investors, causing worry that another March 2020 sell-off might occur again. Mutations of the COVID-19 virus are unavoidable; we believe that this strain, while more transmissible, will be less virulent. 

3. Companies around the world are battling supply chain bottlenecks as a post-pandemic spike in demand converges with industrial production struggling to catch up after Covid-induced shutdowns. Policymakers across major central banks have stated that the period of higher prices is transitory and will normalize in the medium term.

4. Crude oil futures ended November with their biggest monthly declines since the outset of the pandemic. For November, Brent fell by 16% and WTI fell 21%, the biggest monthly fall since March 2020. These declines are tied to expectations of strategic reserves release and the potential return to lock-downs if the Omicron variant is not controlled.

Due to the above, the VIX (the Volatility Index) surged to its highest level since February 2020. On November 26, the VIX index surged 54%, and the S&P and Dow fell each over 2% for the day. Volatility will continue as global equity markets transition out of the pandemic economy.