Selected market indicators for period ended 30 November 2017

Provided by Mercer.
After a bumper month in October, the majority of investment markets also delivered positive returns in November.
The US market was boosted by the successful passage of the Trump Administration’s tax bill through the U.S. Senate Budget Committee during the month. In contrast,
Europe and the UK lagged other markets; tense Brexit negotiations and the struggle to form a coalition government in Germany weighed on the
region’s markets. Towards month end North Korea launched yet another ballistic missile, putting further strain on international relations.

The MSCI World Index performed well, up +1.6% (in local currency terms). The NZ dollar continued to fall against the euro, pound and yen, raising the unhedged return to +2.0%. NZ equities underperformed when compared with other developed markets, returning +0.6%. Domestic bond yields fell, helping NZ Government Bonds return +0.8%. Global Government Bonds were weaker, returning +0.3%. Global Listed Property and Infrastructure both performed well, returning +2.4% and +1.3% respectively.

An estimate of a Balanced Fund gross index return based on selected market indicators for November is +1.0%.

Significant recent items include:
  • The UK’s official bank rate was lifted from 0.25% to 0.5%, the decision supported by record-low unemployment, rising inflation and stronger global economic growth. It is the first increase for more than 10 years, with two more rises anticipated over the next three years.
  • South Korea’s central bank raised interest rates for the first time in six years. The rise to 1.50%, up 0.25%, ended a prolonged easing cycle as a sustained export boom has lifted economic growth.
  • After last-minute negotiations to get some Republican senators across the line, the US tax bill made it through the full Senate with a narrow majority. Those in favour of the bill are seeking to sign it into law by Christmas, which could see the reforms take effect from 1 January.
  • The European Banking Authority will be relocating to Paris, from London, following the UK’s withdrawal from the European Union. At the same time French President, Emmanuel Macron, is pushing for the establishment of a Eurozone parliament and European Monetary Fund.

Trans-Tasman Equities
The New Zealand market eased off in November, with the NZX50 Index returning a more modest +0.6% for the month, the lowest monthly return for the index this calendar year. Previous drivers of NZX growth A2 Milk, Spark and Xero all had negative returns in November, contributing to the weaker return. In Australia, the ASX200 Index continued its resurgence, delivering a +1.6% return for the month.

Global Equities
The MSCI World index (in local currency) returned +1.6% for the month. Positive business sentiment and earnings growth continues to support equity markets, with most major markets now experiencing sustained economic growth. Emerging market equities, up +37.2% in NZD terms over the past year, lagged developed markets in November, returning +0.0%.

Property and Infrastructure
Global Listed Property had its best month since February, returning +2.4%, and outperforming Global Listed Infrastructure (1.3%). Both real asset sectors remain well behind the broader global equity market over 12 months. Infrastructure has performed better over the 12 month period due to improved inflation expectations and improving commodity prices.

NZ Bonds and Cash
New Zealand Bonds had another good month in November, with Government Bonds returning +0.8% and New Zealand Corporate Bonds up +0.5%. The Reserve Bank kept interest rates on hold during the month, leaving the Official Cash Rate (OCR) at 1.75%. The NZ 10 year bond yield fell 0.17% to 2.76%. NZ Cash has delivered +2.0% over the past 12 months, lagging NZ Bonds (+4.4%).

Global Bonds
Global Aggregate Bonds (+0.2%) and Global Sovereign bonds (+0.3%) both posted modest returns for the month. The 10 year US Treasury Bill yield rose to 2.42% by the end of November, up 0.04% on the previous month. The UK and South Korea both raised their respective central bank interest rates for the first time in several years and the US Fed is expected to raise its rate again in mid-December.

The NZ dollar continued to fall against the Euro (-2.1%), British pound (-1.7%) and Japanese yen (-1.3%), but stabilised against the US dollar (+0.2%) and strengthened against the Australian dollar (+1.2%). On a trade-weighted basis, the NZ dollar fell -0.7%.

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