Selected Market Indicators for Period Ended 31 July 2019


Provided by Mercer.

July served up more positive returns for investors despite signs of increasing market strain and a weakening global economic outlook.

While easing Central Bank policies (including interest rate cuts in the US and Australia) buoyed equity markets, investors continued to buy up defensive assets even despite a general downward trend in global bond yields. With global inflation and unemployment still low markets remain finely balanced with events such as the evolving landscape of US – China trade and Brexit negotiations doing little to calm investors’ nerves.
Developed equity markets continued to deliver healthy yields, with the MSCI World Index returning +1.2% for the month in local currency (+2.3% in unhedged New Zealand dollars). NZ (+3.4%) and Australian (+2.9%) equities were stand-out performers, outperforming global markets. Global Listed Property (+1.0%) and Infrastructure (+0.1%) returns were positive, but trailed their equity counterparts. Bond markets continued to perform well, further supported by falling bond yields; NZ and Global Aggregate Bonds both returned +0.7% for the month.
An estimate of the Balanced Fund gross index return based on selected market indicators for July is +1.4%.
Significant developments include:
  • The concerns of a possible “No Deal” Brexit were compounded with the appointment of the new British Prime Minister, Boris Johnson; Johnson signalling that while he intends to try and renegotiate the Withdrawal Agreement, he is ultimately prepared to go through with a potentially economically damaging “no deal” exit if better terms are not offered by the European Union.
  • German industrial output is 5.2% lower than a year ago, exacerbating fears that Europe’s largest economy could be heading for its first slump in over six years.
  • The Reserve Bank of Australia (RBA) lowered its cash rate by 25 basis points to 1.0% at the beginning of July, outlining that uncertainty generated by trade and technology disputes have tilted global economic risks to the downside.
  • At the end of July, the US Federal Reserve cut its Fed Funds Rate for the first time in more than a decade, dropping its benchmark interest rate by 0.25% after much speculation earlier in the month over whether the size of the cut would be bigger.
Trans-Tasman Equities
The NZ share market was a top performer over the month, gaining +3.4% and outperforming its Australian counterpart, which returned +2.9%. Both markets are up over 20% in 2019 so far, as the high-dividend paying Antipodean markets remain attractive to offshore investors and the respective Reserve Banks have indicated they are prepared to support growth in the two economies.
Global Equities
Developed equity markets (+1.2%) had a relatively slower month compared to most in 2019 to date. Investor risk appetite tilted towards more defensive asset classes in light of adverse growth figures coming out of Europe and ongoing trade tensions weighed on returns. Emerging markets (-1.0%) were particularly affected by such issues, lagging well behind their developed peers.
Property and Infrastructure
The Global Listed Property and Infrastructure sectors delivered positive returns in July, up +1.0% and +0.1% respectively (NZD hedged) for the month. The sector continues to remain strong over a 12-month time horizon with property (+8.0%) and infrastructure (+13.0%) benefitting from historically low interest rates at a global level.
NZ Bonds and Cash
NZ composite bonds (a combination of government and corporate bonds) had a month analogous to June, returning +0.7%. The NZ 10-year bond yield continued to defy expectations, finishing the month at yet another all-time low of 1.44%. The Australian 10-year bond yield told a similar story, bottoming out at 1.19%.
Global Bonds
Global aggregate bonds returned +0.7%, following the trend of falling bond yields around the globe as investor trepidation grows. The 10-year US Treasury yield was a notable exception to this, treading water and closing out the month at 2.01% - a difference of 0.01% from June.
The NZ dollar had a mixed month, gaining against the British Pound (+2.1%) and the Euro (+0.5%), as the disorder of Brexit continues to intensify. Conversely, the kiwi dollar found itself slipping against safe-haven currencies, the US Dollar (-1.7%) and the Japanese Yen (-1.0%), as trade tensions continue to erode investor optimism.

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