Investment market performance

By Russell Investments
After a challenging year for investors in 2018, global share markets staged a stunning comeback in 2019, as investors cheered further interest rate cuts by central banks around the world and a softening of rhetoric around important elements of the US-China trade war. With key interest rates, like New Zealand’s Official Cash Rate (OCR), being cut to combat subpar economic growth and offset weakening confidence due to the US-China trade negotiations, fixed interest securities (or bonds) also performed exceptionally well. The price of bonds typically moves inversely to interest rates, meaning that falls in interest rates lead to bond price increases.

The strong results from both shares and fixed interest securities meant that most investors had something to be happy about in 2019.

The beginning of 2020 seemed to offer a continuation of last year as progress in the United States-China trade talks and accommodative central banks led to a strong start to the year for share markets. However, sentiment changed dramatically in mid-February as investors woke up to the very real impact that the coronavirus was having on the global economy. Since that time, the coronavirus pandemic has upended life as we know it, sending large swathes of the globe into lockdown and effectively shuttering the global economy. Almost every country on earth is currently experiencing a once in a generation health emergency as the coronavirus has spread rapidly through exposed populations. Millions of people have already lost their jobs while many sectors of the economy are currently out of action.

The impact on financial markets has been immense. After hitting all-time records during February, share markets declined precipitously with many key indices entering official bear market territory (-20%) in a matter of weeks. Corporate fixed interest securities also experienced significant weakness as investors attempted to assess the impact of the massive economic shock on corporate earnings and balance sheets.  At the same time, Saudi Arabia launched an aggressive price war in the global oil markets helping send crude oil to levels not seen for almost 20 years which placed significant pressure on the shares and fixed interest securities of companies operating in this sector. 

The response to the crisis from policy makers has been swift and aggressive. Central banks have drastically cut interest rates and implemented liquidity programmes, while governments have introduced massive stimulus programmes to support their local economies while they battle the coronavirus pandemic. Share markets, although still down significantly on the year, recovered somewhat towards the end of March as investors reacted to the unprecedented co-ordinated policy response.

Members in the Conservative, Balanced and Growth options will see declines in their balances at the end of March, reflecting the significant turmoil in investment markets. While it is painful and the environment is concerning, we encourage members with no pressing need for funds to consider their long-term investment goals and tolerance for risk rather than reacting too much to recent events. Superannuation is a long-term game which means that staying invested is one of the most important decisions you can make.

 The information contained in this publication was prepared by Russell Investment Group Limited. It has been compiled from sources considered to be reliable, but is not guaranteed. This publication provides general information only and should not be relied upon in making an investment decision. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs. All investments are subject to risks. Past performance is not a reliable indicator of future performance.

Copyright © 2020 Russell Investments. All rights reserved. This information contained on this publication is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. .

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