Selected market indicators for period ended 31 October 2017

Provided by Mercer. 
In a month that marked the 30th anniversary of the 1987 stockmarket crash, things couldn’t have looked much different in October 2017, with little more than the NZ dollar falling in value over the month.

Japanese equities led the way, boosted by the re-election of Prime Minister Shinzo Abe. Speculation over the appointment of a new US Federal Reserve chair early in the New Year helped weigh down yields, contributing to positive returns from fixed interest markets.

The MSCI World Index performed well in October, up +2.5% (in local currency terms). A falling NZ dollar meant investors in unhedged overseas equities experienced significant positive returns (+7.5%). NZ equities performed roughly in line with other developed markets, returning +2.8%. Bond markets rebounded on the back of falling yields, with NZ and Global Government Bonds both rising +0.5%. Corporate Bonds continued to outperform sovereign bonds in both markets. Global Listed Property returned 0.2%, lagging Global Listed Infrastructure (+2.5%).

An estimate of a Balanced Fund gross index return based on selected market indicators for October is +2.1%.

Significant recent items include:
  • The US Federal Reserve confirmed its plans to begin unwinding its balance sheet in October by very gradually reducing reinvestments of treasuries and mortgage-backed securities from maturing securities.
  • In NZ, a coalition government between Labour and New Zealand First was established, led by Prime Minister Jacinda Ardern. The minority government is reliant on the support of the Green Party in order to command a majority in the House of Representatives. Market reaction was muted to the somewhat surprising announcement on 19 October, although it did contribute to the falling NZ dollar
  • Tensions remained high in Spain as the struggle over the independence of Catalonia continued. Prime Minister of Spain, Mariano Rajoy, dissolved the Parliament, dismissed the Government and called for a regional election for 21 December.
  • Japanese Prime Minister Shinzo Abe was re-elected prime minister as his Liberal Democratic Party-led coalition won and retained its supermajority in the House of Representatives.

Trans-Tasman Equities
The New Zealand market continued to make forward strides in October as the NZX50 reached all-time record levels, returning +2.8% for the month. A2 Milk (+34.8%) provided the most significant boost to the NZX50. In Australia the ASX 200 Index bounced back from a disappointing September, delivering a +4.0% return for the month.

Global Equities
The MSCI World index (in local currency) returned +2.5% for the month despite continued uncertainty in Europe (around the formation of the next German government and tensions in Catalonia) leading to volatility in the region’s stockmarkets. Strong global growth, market expansion and currency appreciation continued to support emerging market equities, which outperformed developed markets.

Property and Infrastructure
Global Listed Property and Global Listed Infrastructure increased over the month, up +0.2% and +2.5% respectively. Both real asset sectors remain well behind the broader global equity market over 12 months. The latter has performed better due to improved inflation expectations and improving commodity prices.

NZ Bonds and Cash
New Zealand Bonds delivered good returns in October, with Government Bonds returning +0.5% and New Zealand Corporate Bonds up +0.6%. The 10 year NZ government bond yield fell slightly over the month, finishing at 2.94% (down -0.02% on September).  NZ Cash has delivered +2.1% over the past 12 months, in line with NZ Bonds.

Global Bonds
Global Aggregate Bonds and Global Sovereign bonds both returned +0.5% for the month. The 10 year US Treasury Bill yield rose to 2.38% by the end of October, up from 2.33% a month earlier. Corporate bonds continued to outperform government bonds as investors’ search for yield drove credit spreads to narrow further over the month.

The NZ dollar weakened against all major currencies in October, with the majority of value lost over the second half of the month as markets reacted to policy uncertainty under the new coalition government. The largest falls were against the US dollar (-5.2%), British pound and Japanese yen (both -4.3%). On a trade-weighted basis the NZ dollar fell -4.5%.


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