Investment market performance

Source: Russell Investments
Quarter ended 30 September 2020

Despite the escalating global COVID-19 pandemic, global share markets continued to gain ground during the 3rd quarter, rising on the back of expectations of ongoing government and central bank policy support and the partial re-opening of economies around the world. After unprecedented declines in economic activity during the 2nd quarter, the 3rd quarter was marked by sharp rebounds in GDP growth as many countries eased restrictions and began to open their economies. US GDP growth was a remarkable 33% for the 3rd quarter, while the Euro zone touched 13% for the quarter. Even with the exceptionally sharp rebounds, 2020 will be a very difficult year from an economic perspective, with global GDP falling almost 5% (according to the IMF) and unemployment rising sharply.

Given the poor economic fundamentals, the strength of global share markets has been surprising, with dramatic recoveries since the mid-March lows. Across the market there has been a wide range in results, as while some companies and sectors have been devastated by the pandemic others, such as companies in the technology and consumer sectors, have thrived. Fixed interest securities continue to perform well as lower interest rates flow through to higher bond prices. This trend cannot continue forever though and with interest rates at record low levels, investors will need to accept lower returns from fixed interest securities in the years ahead.

Elections loomed large on the horizon with New Zealand and the US going to the polls in the 4th quarter. Subsequently, Labour delivered its strongest election results since the 1930s, with Jacinda Ardern and her colleagues attracting about 50% of the votes cast. As a result, Labour will be able to govern on its own which should enable it to focus on its stated spending priorities including infrastructure and climate-related spending. At the time of writing, former Vice President Joe Biden appears to have won the US election, but it was not the ‘blue wave’ expected by some pundits.

Of the key investment markets within the various member options, New Zealand and US share markets continue to be notable standouts, and both are up on the year now. Emerging markets shares also performed strongly during the quarter. The wide variation in returns from both a country, sector and asset class perspective, once again highlight the benefits of adopting globally diversified investment strategies and members can feel comforted by the fact that they do not have ‘all their eggs in one basket.’ 

Members in the Conservative, Balanced and Growth options will see continued recovery in performance over the 3rd quarter, from the end of June through to the end of September. As we move through the COVID-19 pandemic to an eventual viable vaccine and/or treatment there will undoubtedly be further significant market gyrations and members should expect volatility, but the recent recovery does highlight the detrimental impact that knee-jerk reactions can have on long-term investment results. Saving for retirement is a decades-long proposition for many members, so resisting the urge to react to short-term market movements and focusing on long-term goals and objectives is encouraged.

 Source: Russell Investments
Date: 11 November 2020

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