Selected market indicators for period ended 31 December 2016

Provided by Mercer.
Welcome to 2017! December was a rather quiet month for political and macroeconomic events, especially in the context of what was a rather turbulent 2016.

Most global markets delivered positive returns, supported by firm economic data, improved inflation rates and the extension of quantitative easing in Europe. In the US, equities continued to move higher in the wake of encouraging economic and consumer confidence reports, as well as growing anticipation of tax reforms, infrastructure spending and deregulation from the Trump administration.

The MSCI World Index rose +2.8% (in local currency) during December. Unhedged investors received a return of +4.1%, with the NZD depreciating against the US dollar and the Euro. Locally, NZ Shares underperformed other developed markets, falling for the fourth straight month (down -0.2%). NZ Government Bonds also fell, returning -0.7%. Global Aggregate Bonds finished the month up +0.4%. Global Listed Property and Global Listed Infrastructure returned +3.7% and +3.1% respectively.

An estimate of a Balanced Fund gross index return based on selected market indicators for December is +1.2%.

Significant recent items include: 

  • The US Federal Reserve increased the Target Range by 25 basis points to 0.50% - 0.75% on 14 December and signaled the potential for three additional increases in 2017.
  • In the US, the S&P 500, Dow Jones Industrial Average and NASDAQ reached all-time highs during the month, increasing 2016 returns to +12.0%, +16.5% and +8.9%, respectively (all returns in USD).
  • Along with the Bank of England and Swiss National Bank, the European Central Bank (ECB) left its key interest rate unchanged in December. The ECB’s decision to extend its quantitative easing program to December 2017 (an extra nine months) created downward  pressure on the euro and gave European share markets a boost.
  • Commodity prices were mixed in December with a surge in Energy sector (Oil and Natural Gas both up over 10%) contrasting with falls in Precious and Industrial metals (Gold down -1.9%, Silver -3.0% and Copper -5.0%). The final Global Dairy Trade (GDT) auction of 2016 concluded on a relatively flat note with the price index down -0.5%.

Trans-Tasman Equities
It was a tale of two halves for NZ Equities in December, with declines in the first half of the month followed by gains in the second - the net result was a return of -0.2% for the month. In contrast, the ASX200 returned +4.4%, supported by strong performance in the financials and materials sectors. Despite recent falls, NZ equities still outperformed the MSCI World Index (in local currency) in 2016.

Global Equities
Developed markets around the globe delivered positive returns in December. The MSCI World Index rose +2.8% in local currency terms, pushing the annual return to +9.0% for 2016. The European region outperformed other developed markets in December, returning +5.8%. Emerging Market shares lagged developed markets, returning -0.1% in December, and finishing the year up +7.1%.

Property and Infrastructure
Global Listed Property (hedged) had a good month, up +3.7% as investors reacted positively to a decline in long term bond yields toward the end of the month and relatively buoyant share markets. Global Listed Infrastructure also delivered a positive return (+3.1%) over the month, concluding the year as one of the best performing asset classes, up +13.3%. 

NZ Bonds and Cash
NZ Government and Corporate Bonds both declined -0.7% in December. Persistent yield increases over the past few months have eroded some of the positive returns achieved earlier in the year, resulting in  modest returns in 2016 of +3.4% and +3.7% respectively. The Cash return remains low by historic measures, with the index returning +2.5% for the year.

Global Bonds
Global Bonds recovered some lost ground in December despite the Fed rate hike mid-month (which at the time had become widely anticipated). Corporate bonds outperformed government bonds, reflecting expectations of improving economic growth. Global Aggregate and Sovereign Bonds returned +5.8% and +5.6% respectively in 2016 which are strong returns under the current low rate environment.

The NZ dollar appreciated against the AUD (+0.4%) and JPY (+0.7%), while depreciating against most other currencies, most notably the USD (-1.6%) and the euro (-1.1%). On a trade-weighted basis, the NZ dollar weakened -1.0% in December. The weak performance of the NZ dollar reflected the mid-month US interest rate hike and the slight reduction in the dairy price index before month end.


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