Selected market indicators for period ended 30 April 2018

 Provided by Mercer.
April saw equity markets bounce back from their recent decline, delivering positive returns across all developed economies.

Market sentiment was improved by generally positive economic and earnings data released over the month, while the potential for a trade war between the US and China transitioned from aggressive tweets into formal negotiations, improving investor confidence of an amicable resolution. Uncertainty remains though, as surveys show US businesses are becoming increasingly concerned about the potential outcomes of the trade negotiations.

The MSCI World Index posted a strong positive return in April of +1.9% (in local terms), clawing back much of March’s decline. Unhedged investors gained +3.6% over the month, with the NZ dollar falling against all major currencies except for the yen. The NZX 50 returned +1.5% and the ASX 200 returned +3.9% (in local terms). Global aggregate bonds fell -0.4% while domestic bond returns were near zero. Global Listed Property and Global Listed Infrastructure outperformed the broader equity market, up +2.9% and +2.7% respectively.

An estimate of a Balanced Fund gross index return based on selected market indicators for April is +1.1%.

Significant recent items include:
  • Kim Jong-un and Moon Jae-in, the leaders of North and South Korea respectively, have vowed to negotiate a treaty to formally end the Korean War.
  • The UK economic growth rate for Q1 2018 was +0.1% for the quarter, below expectations, bringing year on year economic growth to +1.2%, much lower than the 2.4% reported by the European Union, reflecting the uncertainty UK businesses face with Brexit on the horizon.
  • The Trump administration delayed its decision to impose steel and aluminum tariffs on its key trading allies, giving the European Union, Canada and Mexico another 30 days before negotiations will be finalised.
  • The US Federal Reserve (‘Fed’) maintained its official target rate of 1.5% - 1.75% in its review just after month end. The Fed maintained its quantitative tightening sentiment, with the official target band expected to be hiked in June at its next policy meeting.

Trans-Tasman Equities
The NZX 50 delivered positive returns in April, up +1.5%. Synlait Milk (+19.2%) was the top performer for the month, while a2 milk (-2%) was one of the few stocks to decline.  Australian shares outperformed New Zealand over the month, delivering +3.9%, breathing life into a market that has under-performed most developed markets over the last 12 months.

Global Equities
Global equity markets enjoyed positive returns in April, up +1.9% in local currency terms. Strong company earnings data, set against a backdrop of solid Chinese economic growth data and rising commodity prices, helped boost returns. The Energy sector was the best performer of the month, while Consumer Staples was the only sector to detract from performance.

Property and Infrastructure
Expectations of increased inflation saw investors moving to real assets such as property and infrastructure as a hedge, with Global Listed Property up +2.7% and Global Listed Infrastructure up +2.9%, both ahead of the broader equity market. However, both sectors remain well behind global share markets over 12 months.

NZ Bonds and Cash
At an aggregate level, New Zealand Bonds delivered a near zero return in April, with Government Bonds (-0.2%) underperforming Corporate Bonds (+0.1%). The NZ Government 10 year bond yield initially rose from 2.74% at the end of March, before falling back to 2.79% at the end of April.  

Global Bonds
Signs of increasing inflation saw investors pricing in greater expectations of interest rate hikes from central banks in the future, contributing to Global Bond declines over the month. Global Government Bonds fell -0.4%, while Global Corporate Bonds fell -0.5%. The US 10-year bond yield rose above 3% for the first time since January 2014 during the month, before ending April at 2.94%.

During the month the NZ dollar weakened against all major currencies bar the Japanese yen (+0.5%). In contrast to March, the NZ dollar lost the most ground against the US dollar, falling by -2.3% over the month. The trade-weighted index (TWI) fell by -0.8% over the month, ending at 73.7.

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