Selected market indicators for period ended 31 March 2017

Provided by Mercer. 
March may have signaled the end of the “Trump trade” as the US equity market, in a buoyant mood since the election, stalled following the White House’s failure to implement key policies.

In contrast, sentiment was much more positive in Europe with several markets reaching multi-year highs. The Dutch election victory for the centre and more positive polls in France and Germany were greeted by investors as a signal to take advantage of lower valuations there. Even the formal commencement of the Brexit process was not enough to dampen sentiment.

The MSCI World Index rose +1.0% (in local currency) during March. Unhedged investors received a return of +4.6%, benefitting from a weakening NZ dollar, which depreciated -3.3% against the US dollar. Locally, NZ Shares and Government Bonds had modest returns over the month, up +0.8% and +0.5% respectively. Global Aggregate Bonds and Global Government Bonds were flat for the month. Global Listed Property and Global Listed Infrastructure returned -1.4% and +2.5% respectively.

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

Significant recent items include:
  • Trump administration failed to repeal and replace the Obamacare due to the lack of support from its own Republican party. Markets had been cautious on the possibilities of whether his pro-business agenda would also face the same challenges.
  • The US Federal Reserve increased the target cash rate by +0.25% to 1.0% in mid-March. The FOMC continues to signal that future rate hikes remain conditional on improving growth and inflation and will likely to be gradual.
  • The Dutch election resulted in a pro-European outcome. The conservative liberalism VVD party lost 8 seats in the election; though with the current PM, Mark Rutte, likely to remain in power, there was relief from the EU governments facing a wave of nationalism.
  • The UK finally lodged its notification to the European Union to formally start the negotiation of terms to leave the Union. The market was largely unaffected by this well anticipated action as the MSCI UK moved up +1.2% in local currency terms.

Trans-Tasman Equities
NZ equities closed March relatively flat (+0.8%). The market’s biggest constituent, Fletcher Building, suffered an earnings downgrade which drove its share price down by more than -13% to offset gains elsewhere. The ASX 200 continued to rebound strongly from the slow Q3 and Q4 2016 with the support of improved retail and consumer sentiment from both Jan and Feb, returning +3.3%.

Global Equities
Developed markets around the globe delivered mixed returns in March, with Europe strong, the US flat and Japan down. The MSCI World Index rose +1.0% in local currency terms, supported by higher than expected GDP growth rate in many European countries. Emerging markets also performed well, returning +1.9%. Unhedged investors benefited from the weakening of NZD earning a healthy +4.6%.

Property and Infrastructure
Returns from Global Listed Property and Global Listed Infrastructure diverged in March. The Property market had a tough month as long term bond yields rose slightly, with the index down -1.4%. On the other hand, Global Infrastructure delivered +2.5% for the month with strong support from improved consumer confidence and retail spending across many major countries.

NZ Bonds and Cash
NZ Government and Corporate Bonds both delivered positive returns in March, up +0.5% and +0.6 respectively, but returns over the last year were quite modest. The yield curve flattened during the month as the 10yr government bond yield continued to drop, closing at 3.21%. The Cash return remains low by historic measures, with the index returning +2.3% for the past 12 months.

Global Bonds
Global bond markets stagnated in the month of March, with long term yields inching higher across many developed countries. Global Aggregate Bonds and Global Sovereign Bonds indices both closed March within 0.10% from the start of the month. Corporate bonds performed in line with government bonds as investors focused on political and economic risks ahead.

The NZ dollar declined against all major currencies in March. The largest decline was against the Euro, down -4.0%, finishing the month at 0.653. The USD strengthened against NZD despite a relatively strong rebound in the NZD post the Federal Reserve rate hike mid-month, closing the month just shy of 0.70. On a trade-weighted basis, the NZ dollar fell -2.9%.


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