Selected Market Indicators for Period Ended 30 April 2019

18/11/2019
  Provided by Mercer.
April continued the positive start to 2019 for investors, with equity markets maintaining their positive momentum. Despite fears of slowing economic growth, there was good news surrounding US-China trade talks against a backdrop of more accommodative global monetary policy.

Most of the central banks in the developed world, including the US Federal Reserve and European Central Bank, came out with statements confirming their commitment to keeping key interest rates at their current levels for the foreseeable future. The news of a Brexit extension out to the end of October 2019 also helped to allay (or delay?) any latent investor concerns about the current economic environment.

The NZ share market had a slower month than its global counterparts, but still posted a positive return (+1.7%). The MSCI World Index was up +3.8% for the month in local currency terms, and +5.9% in unhedged NZ dollars. The Global Listed Property (-1.1%) and Infrastructure (+0.9%) sectors both had a weak month relative to the broader share market. Bond markets suffered from both the increasing attractiveness of equity markets and 10-year dividend yields across many developed markets coming back from historic lows; NZ and Global Aggregate Bonds returned -0.2% and 0.0% respectively for the month.

An estimate of the Balanced Fund gross index return based on selected market indicators for April is 1.7%.

Significant developments include:
 
  • The European Union granted UK Prime Minister Theresa May an extension on the Brexit deadline, out to 31 October 2019. Whilst there is general gridlock on the way forward, there is now more time for Theresa May to gain some political consensus on an exit strategy.
  • In early May, US President Donald Trump stated that US-China trade-talks are progressing too slowly, threatening to raise additional tariffs on $200billion of Chinese goods. This could present a risk to global equity markets which have been pricing in a more settled outlook.
  • 263,000 new jobs were created in the US last month helping the US unemployment rate fall to 3.6 per cent, the lowest since December 1969. Wage inflation by comparison, however, remains more moderate.
  • The next RBNZ OCR announcement will be livestreamed on May 8, with commentators evenly split on whether the RBNZ will drop the OCR (currently at 1.75%), or hold off until the next meeting.

Trans-Tasman Equities

The NZX continued its trend of strong growth in April, returning +1.7% for the month. The Index has now returned +19.8% over 12 months. The NZX 50’s high-dividend yield nature remains attractive globally, especially in this global low interest rate environment. The Australian market had a strong month, up +2.4% in local currency terms, taking the 12 month return to +10.4%.

Global Equities

Developed equity markets returned +3.8% in April. There were strong returns from the US (+4.0%), UK (+2.2%) and European markets (+4.1%). An extension to the Brexit deadline helped, as did increased business confidence in Europe. Emerging Markets (+2.6%) were slightly below their developed counterparts over the month. All returns in local currency.

Property and Infrastructure

Global Listed Property (hedged) and Global Listed Infrastructure (hedged) both faced headwinds, returning -1.1% and 0.9% respectively. The increased strength of global equity markets weighed down the attractiveness of these relatively defensive sectors which had performed strongly in the first three months of the year.

NZ Bonds and Cash

NZ composite bonds (a combination of government and corporate bonds) had a relatively underwhelming month, down -0.2%. However, over 12 months NZ Bonds have returned +6.4%. The NZ 10-year bond yield recovered somewhat from its record low (1.72%), ending the month at 1.91%. The Australian 10-year yield, however, remains near all-time lows (1.79% at month end).

Global Bonds

Global aggregate bonds returned 0.0% for the month, treading water in anticipation of central bank announcements in early May. The 10 year US Treasury yield (2.51% at month end) also recovered slightly during the month (coming off a low of 2.37% on 27 March), but remains close to the yield on 3-month T-bills (2.42% at 30 April).

Currency

The NZ dollar dropped against all major overseas currencies over the month, including the US dollar (-2.2%), the pound (-2.3%), and the euro (-2.0%). Positive news surrounding Brexit and encouraging growth signs in Europe helped to strengthen their respective currencies against the NZ dollar.
 
 

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