Selected market indicators for period ended 30 November 2016

09/12/2016
 Provided by Mercer.
Equity markets performed relatively well in November, while bond markets declined.

Donald Trump’s victory in the US Presidential Election was the latest (and arguably biggest) surprise in a string of unexpected political outcomes this year. While the initial equity market reaction was intensely negative (US equity market futures falling more than 5% in the early hours of 9 November), it rebounded quickly as President-elect Trump cut a very different figure from campaign Trump. While any significant equity market volatility has yet to materialize, US 10-year bond yields surged almost 0.5% post-election, back to levels last seen in July 2015. Uncertainty abounds about what a Trump administration means for US economic, trade and geopolitical policies, with Trump already retreating from some of his campaign promises.

The MSCI World Index rose +2.6% (in local currency) during November. Unhedged investors received a return of +2.4%, with the NZD falling against the US dollar and the British pound. Locally, NZ Shares underperformed other developed markets, falling -0.8%, while NZ Government Bonds fell -1.4%. Global Aggregate Bonds finished the month down -1.6%. Global Listed Property and Infrastructure also declined during the month, returning -1.2% and -3.0% respectively.

An estimate of a Balanced Fund gross index return based on selected market indicators for November is 0.0%.

Significant recent items include:
  • Italy’s constitutional referendum on 4 December concluded with a “no” vote, resulting in Prime Minister Matteo Renzi handing in his resignation.
  • Prime Minister John Key surprised the nation early in December by announcing his resignation. Key has named Bill English as his preferred successor.
  • Gold prices hit a nine-month low in November, falling to $1170 USD per ounce, before recovering towards the end of the month.
  • Oil prices surged at the end of the month after the latest OPEC meeting. The members agreed to cut output by 1.2 million barrels per day (approximately 3.5%), leading to an almost immediate 9.3% price increase.
  • The Reserve Bank of New Zealand announced another cut in the Official Cash Rate in November, dropping to 1.75%.

Trans-Tasman Equities

November was another tough month for New Zealand equities, returning -0.8%. Rising global yields have encouraged overseas investors to seek improving returns elsewhere. Across the Tasman the ASX200 Index returned +0.9%, driven by a well performing financials sector over the month.

Global Equities

Turning around from last month’s negative return, the MSCI World Index rose +2.6% in local currency terms. Japan continued to outperform the rest of the developed market, returning +5.8%. Emerging Market shares declined over the month (-2.2%), reflecting uncertainty over their future prospects with the new US President-elect.

Property and Infrastructure

Similar to NZ equities, Global Listed Property (hedged) suffered over the month, down -1.2% as investors reacted to rising bond yields across major economies. Global Listed Infrastructure was more negative, down -3.0%. Commodities ended the month with a positive return, up +1.5%, with most components performing strongly.

NZ Bonds and Cash

NZ Government Bonds declined -1.4% while NZ Corporate Bonds fell -0.7% in November. The local bond market was widely affected by global factors this month, with the US election result seen to be a catalyst for rising yields (falling prices). The OCR cut helped to keep NZ yields in check when compared globally. The economy continued to grow and provided some positive data points in November, notably Fonterra increasing their 2016-2017 milk price forecast to NZ$6/kg.

Global Bonds

Global Bond yields surged over the month, reflecting the fact that many investors believe Trump’s plans will increase spending and raise inflation. Asset classes with higher interest rate sensitivity were especially vulnerable over the month. Global government and global aggregate bonds both fell by -1.6% over the month.

Currency

The NZ dollar fell against the US dollar (-0.9%) and British pound (-3.2%), while appreciating against all other major currencies, most notably the Japanese yen (+7.4%). In recent months the kiwi has benefited from major central banks maintaining their near-zero interest rate policies. However, the surprise resignation from John Key in early December is likely to add some volatility, and potential downward pressure, to the NZ dollar.
 

 

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