Selected Market Indicators for Periods Ended 31 December 2020

14/01/2021

Global share markets finished the last calendar month of 2020 on a positive note! Despite political tension in the US and a new, highly contagious variant of COVID-19 spreading throughout the UK, global share markets continued to see inflows as investors gained comfort from the global vaccine rollout.

The Brexit transition period has officially ended and the United Kingdom and European Union have announced the Trade and Cooperation Agreement (TCA). Even with this agreement in place, many uncertainties remain for the relationship going forward. All things considered global shares returned +3.5% in local currency (+1.7% in NZD).

The New Zealand share market gained +2.6% over the month, benefitting from better than expected GDP data. This is despite the second largest company in the index, A2 Milk, experiencing a -17% loss over the month after cutting its 2021 earnings forecast. Australian shares had a positive month, returning +1.2%, bringing its one year return into positive territory for the first time since February.

Both global property and global infrastructure saw positive returns in December, returning +2.6% and +0.3% respectively. Whilst the sectors are still struggling over one year, they are starting to claw back their losses as investors look for diversification and the vaccine rollout raises hopes of an end to social distancing and lockdown restrictions across the globe.

Domestic bonds experienced outflows throughout December as investors continued to seek riskier assets such as shares. Corporate bonds (-0.3%) outperformed government bonds (-0.9%) over the month. The NZ Composite index which is a mix of government and corporate bonds finished down -0.7%. The NZ 10-year bond yield finished the year at 0.99%, up from 0.87% a month prior.

Global bonds also lagged riskier assets over the month as investors focused their attention on equity markets. Global corporate bonds outperformed global government bonds, returning +0.5% and +0.1% respectively. The US 10-year bond yield increased over the month, up 0.09% to finish 2020 at 0.93%.

Significant developments during the month include:
 
  • A more infectious mutant strain of COVID-19 was discovered in the UK and has now been found in many countries around the world. Subsequent to the discovery, the UK has seen an increase in the number of positive cases that match the April 2020 peak.
  • New Zealand economic growth was better than expected for the third quarter, up 14% and returning to pre-COVID-19 levels.
  • US Law makers approved USD900bn of additional stimulus, exceeding the USD500bn which was expected by analysts.
  • The Japanese government unveiled a third extra budget in December, which included new fiscal stimulus measures worth ¥40 trillion, equivalent to over 7% of Japan’s gross domestic product (GDP).
  • US non-farm payroll numbers disappointed, with employment falling by 140,000 jobs versus analyst predictions of a 71,000 gain.

Trans-Tasman EquitiesThe New Zealand share market gained +2.6% over the month, benefitting from better than expected GDP data. This is despite the second largest constituent in the index, A2 Milk, experiencing a -17% loss over the month after cutting its 2021 earnings forecast. Australian equities had a positive month, returning +1.2%, bringing its one year return into positive territory for the first time since February.
 
Global Equities
Global equities were positive over the month, returning +3.5% in local currency (+1.7% in NZD). Despite political tension in the US and a new, highly contagious variant of COVID-19 spreading throughout the UK, global equity markets continued to see inflows as investors gained comfort from the global vaccine rollout.
 
Property and Infrastructure
Both global property and global infrastructure saw positive returns in December, returning +2.6% and +0.3% respectively. Whilst the sectors are still struggling over one year, they are starting to claw this back as investors look for diversification and the vaccine rollout raises hopes of an end to social distancing and lockdown restrictions across the globe.
 
NZ Bonds and Cash
Domestic bonds experienced outflows throughout December as investors continued to seek risk assets. Corporate bonds (-0.3%) outperformed government bonds (-0.9%) over the month. The NZ Composite index which is a mix of government and corporate bonds finished down -0.7%. The NZ 10-year bond yield finished the year at 0.99%, up from 0.87% a month prior.
 
Global Bonds
Global bonds also lagged riskier assets over the month as investors focused their attention on equity markets. Global corporate bonds outperformed global government bonds, returning +0.5% and +0.1% respectively. The US 10-year bond yield increased over the month, up 0.09% to finish 2020 at 0.93%.
 
Currency
The NZ dollar strengthened against all major overseas currencies over the month except for the Australian dollar (-2.2%). In particular, the NZ dollar continued to strengthen against the US dollar (+2.4%), taking its one year appreciation against the greenback to +6.7%.
 

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