Selected market indicators for period ended 31 January 2016

Provided by Mercer.
"The January effect" (rising share prices) was certainly not in play during the month, as Global Equities had their worst start to the year since 2009.

The catalyst for these falls was a wave of bad news out of China: first, a larger than expected contraction in manufacturing activity (an ongoing trend), then, perhaps in reaction, devaluation of the Chinese yuan - neither signs of a strengthening economy. Adding to the storm of hysteria, US GDP came in at 0.7% for Q4 2015 (below expectations) as consumption slowed and exports were soft due to the strong USD.

The MSCI World Index fell -5.4% (in local currency) during January. The falling NZ dollar reduced the fall for unhedged shares to -0.5%. NZ Equities showed their defensive characteristics, returning -2.4%. Risk aversion led investors towards bonds, driving down yield, which resulted in strong returns for Global Aggregate Bonds (+1.8%) and NZ Bonds (+1.7%). The fall in yields helped higher yielding listed equities: Hedged Global Listed Infrastructure (+0.6%) and Global Listed Property (-3.5%) both delivered better returns than broader market equities.

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

Significant recent items include:
  • The unemployment rate in the Eurozone has fallen to its lowest rate since October 2011 (the depths of the Sovereign Debt Crisis), though at 10.5% is still high. Spain (lowest unemployment rate in a decade) and Ireland (lowest since 2008) were two of the marked improvers.
  • Oil fell to below US$30 per barrel during the month. The low oil price has made it difficult to generate inflation globally, put a strain on oil exporters such as Venezuela and Russia, and has made the once booming US "frackers" unprofitable.
  • Japan became the third country (Switzerland and Sweden are the others) with a negative interest rate. The Bank of Japan cut its call rate to -0.1% and did not rule out further cuts, as it remains woefully short of its 2% inflation target.
  • The NZ economy continues to generate some bright spots outside of the dairy sector. Net migration reached a record high of 64,900 for 2015, tourism numbers are at record highs, and the lower NZ dollar has benefitted non-dairy exports.

Trans-Tasman Equities

Despite global growth concerns, NZ Equities didn't fully participate in the market decline. The NZ earnings picture has been reasonably stable with the falling NZ dollar being a net tailwind to NZ companies. NZ's high dividend yield has also contributed to its stability in this low rate environment. Australian shares fell, reflecting the economy’s reliance on Chinese growth.

Global Equities

Global Equities closed down -5.4% (in local currency) in January, recovering somewhat after being down as much as 10% during the month. The end of the month recovery was driven by Japanese interest rate cuts and the prospect that the US Federal Reserve may not raise interest rates further. Emerging markets performed in line with developed markets, with China and Brazil sold off the most.

Property and Infrastructure

With both being higher yielding asset classes, neither Listed Infrastructure nor Listed Property fell as much as broader market equities. Despite strong rental growth, Global Listed Property has returned -4.7% over the past year, and now trades at a 5% discount to net asset value, reflecting the uncertain economic backdrop.

NZ Bonds and Cash

Driven by the risk off environment, NZ bond yields fell over the month. Added to that, low inflation has increased the prospect of further cuts to the Official Cash Rate. Since then, Governor Graeme Wheeler, has stated that “monetary policy will continue to be accommodative” though warned “it would be inappropriate to attempt to offset the low oil price effect through the OCR”.


This website is provided by Mercer (N.Z) Limited on behalf of the trustee of the Police Superannuation Scheme (PSS). The trustee pays a fee for the provision of this service, however this fee is not conditional on you using this service or acting on the information or advice provided through this service.

PSS Trustees Limited is the issuer of the Police Superannuation Scheme (PSS). A copy of the PSS product disclosure statement is available under Documents and forms and at