Selected market indicators for period ended 30 April 2016

11/05/2016
  Provided by Mercer.
After reaching 2016 highs in mid-April (not in itself a remarkable achievement given losses earlier in the year), global equity markets closed the month with modest gains.

The rebounding oil price and a weaker US dollar contributed to improving sentiment. However, the news wasn’t all good: disappointing earnings and revenue growth in the technology sector, renewed concerns over Greece as the IMF is considering a revisit of the bailout agreement, and the earthquakes in the southern islands of Japan, kept returns constrained.

The MSCI World Index picked up 0.9% during the month (in local currency), lifting the year-to-date return to -1.1%.  Unhedged investors also received a return of +0.9% in what was a mixed month for the NZD.  NZ Shares performed broadly in line with offshore markets in April, rising +1.0%. Global Aggregate Bonds increased slightly during the month, returning +0.3%. Similarly, NZ Bonds were up +0.4%. Global Listed Property (hedged) and Global Listed Infrastructure (hedged) returned -0.7% and +0.3% respectively.

An estimate of a Balanced Fund gross index return based on selected market indicators for April was +0.7%.

Significant recent items include:
 
  • The US Fed left its target rate unchanged at 0.25% – 0.5%, as expected, acknowledging the slowdown in global economic activity.
  • The sharp reversal in oil (up 37% for the past 3 months) and commodities helped energy companies and emerging market assets rebound.
  • The Bank of Japan surprised markets by refraining from adopting new stimulus measures despite weak economic readings, deflationary pressure and a strong yen.
  • The Eurozone economy grew by 0.6% in the first quarter and its labour markets improved slightly, although inflation is still slipping, underscoring the ECB’s challenge to offset deflationary pressures
  • Policy rate cuts were announced across many emerging markets, including Hungary, India, Indonesia, Taiwan, Turkey and Brazil.
     

Trans-Tasman Equities

NZ equities finished April at a new record high, up a further +1.0%. The NZ market has performed at an extraordinary pace (+19.3%) over the last 12 months, as it continues to resist global market turbulence.  The ASX200 had a strong month (+3.4%) benefiting from an increase in business confidence and further appreciation in commodity prices, bringing the year to date return back into positive territory.
 

Global Equities

Global Equities returned +0.9% for the month (in local currency), as energy stocks and US Financials continued to recover from 2016 lows. The gain occurred despite US corporate profits being on pace for a third straight quarterly decline, the longest slide in earnings since the GFC. Instead, markets seemed to focus more on positive changes, particularly in Europe, as expectations for growth there improved following a 0.6% lift in Q1.
 

Property and Infrastructure

Record low interest rates and cheap finance has continued to fuel the global property market in recent years. However, April saw Listed Property prices moderate with the sector declining -0.7%. In contrast, Listed Infrastructure benefited from the sustained rebound in commodity prices, leading to a slight gain during the month (+0.3%).
 

NZ Bonds and Cash

NZ bonds managed to return +0.4% despite the RBNZ surprising much of the market by keeping the OCR unchanged. The NZ 10-year Government bond yield finished the month down slightly at 2.86%. With little sign of inflation, continued NZD strength and indications of low business confidence, further RBNZ rate cuts are expected in 2016.
 

Global Bonds

The Fed’s more dovish tone and the ECB’s extension of its quantitative easing program into corporate debt purchases kept global yields near March-end levels over the month. While Global Sovereign bonds (0.0%) remained flat, a narrowing in corporate spreads (investors were required to pay less for risk) helped Global Aggregate Bonds, a mix of government and corporate securities, to return +0.3%.
 

Currency

The NZ dollar strengthened against the AUD, USD and EUR during the month after the RBNZ decided to keep rates on hold. In contrast, the NZ dollar fell against the JPY and GBP. The NZD reached a 10-month high against the USD during the month, benefiting from a rise in commodity prices, particularly dairy.

 

 

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